Primary markets have been buzzing for the last 2-3 years, thanks to a slew of Initial Public Offerings (IPOs) from diverse sectors.
What is an IPO?
IPO is an important milestone for a company since that’s the first instance when the company attracts various categories of investors from the public markets. In other words, an IPO is a process through which a private limited company becomes a public-listed company.
To know more about IPO investing, you may read these articles:
- Comprehensive Guide to Listing Gains in IPO
- Red Herring Prospectus & its Impact on IPO Investment
- Steps in the Initial Public Offering (IPO) Process
What are the IPO benefits for investors?
- Listing gains: IPOs grab a lot of attention due to excitement amongst investors to participate in the listing of new businesses. If the IPO pricing is right and the grey market premium is high, investors can make quick bucks in the form of listing gains by investing in IPOs. This is because, with the right conditions, the issue price (the price at which the company offers their shares) is less than the listing price (the price at which the stock is listed on the stock market).
- IPOs may turn wealth creators over time: The benefits of IPO investing are not only short-term in nature. Investors get a chance to invest in the high growth potential companies early in their life cycle. There is no dearth of success stories describing how some companies have made their shareholders multi-millionaires if they tapped into them during the IPO time—for instance, Infosys, TCS, HDFC Bank, ICICI Bank and Adani Enterprises, to name a few.
- Tracking progress becomes easy: Investors get a chance to track the journey of a company right from the day it gets listed. This is more important for do-it-yourself (DIY) investors who evaluate and shortlist companies for their portfolios on their own. A public listing gives them more occasions to understand the management of a company better.
- Better utilisation of idle funds: If you have a surplus—after taking care of your contingency reserve and asset allocation requirements—you may channel it to the IPO market.
- Offers diversification: Since new listings often open up new investment areas which were not accessible before, IPO advantages go beyond just making gains. For example, until a decade ago, asset management companies and insurance companies were not accessible to investors, but now are. Moreover, recently listed new-age technology companies have also expanded the alternatives available to investors.
What do companies have to gain from IPOs?
- Better visibility
- Improved access to capital
- Enhanced liquidity
- Diverse ownership
To sum up
Now that you know IPO benefits for investors and IPO advantages for companies, you might feel more confident while applying to any IPO next time.
Applying for an IPO? One lot is a lot!
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