There can be several benefits of Investing in IPO. The profit & revenue of a company may increase after IPO because the company has an inflow of huge capital. Prospects of doing business improve after capital inflow because economies of scale are involved. A company can use better processes if it gets more capital. 

benefits of investing in IPO. 

What is an IPO investment?

The purchase of shares in an IPO is called an IPO investment. If a private company first sells the shares of stock to the public, this process is known as an initial public offering (IPO). 

Is it good to invest in IPO in India?

Investors should do a thorough analysis of the company’s balance sheet & business model before investing in its IPO to predict the benefits of investing in IPO. 

The value of shares for a few Indian companies has gone up after the IPO, indicating the benefits of investing in IPO & it has gone down for a few Indian companies after the IPO. 

The issue price for 1 share of Adani Wilmar Limited was Rs 230. Its price was Rs 641 after 8 months. 

The business model of companies like Zomato & Paytm was not economically feasible. These companies have a huge business but they offered too many discounts & cashback in the beginning. This had a negative impact on their balance sheet. These companies had high valuations before IPO. The share price of Paytm debuted at Rs. 1,950 but today it’s the price is Rs 523.

These 2 links give information about the top 10 best & worst-performing IPO in India.  

1. Best performing IPO – Top 10 IPO in India 2022 (By Performance)

    2. Worst  performing IPO – Top 10 IPO in India 2022 (By Performance)

IPO benefits for employees

In some companies, employees get the stock option. Employees that own the stock of the company can get the benefits of IPO by selling those stocks in the share market during an IPO.

Strategies to get high benefits from investing in IPO

People have different strategies to get the maximum possible benefits of investing in IPO. Few people prefer to earn money from shares by selling them as their value increases. 2 kinds of trading can be done.

• Intraday trading
• Long term trading

Intraday trading  to get the benefits of investing in IPO

Shares are purchased & sold on the same day to get the benefits of investing in IPO. Shares can be traded from 9:15 am to 3:30 pm. 

Long-term trading to get the benefits of investing in IPO

Change in price is observed & accordingly shares are sold to get the benefits of investing in IPO. People keep the shares for more than 1 day. We can observe the variation in the value of shares on a weekly, fortnightly, monthly, trimonthly (quarterly), or annual basis. As the value of share increases, it can be sold. If the value of the share rises after a few months then it is recommended that all the shares of this company should not be sold together. We can sell a part of those shares. It is suggested not to sell all the shares because their value may increase further.

The price of 1 share for “Home first finance” during its IPO in January 2021 was Rs 518. The price of its 1 share in August 2022 was Rs 965.  

This indicates an annual increase of 50% for the share valuation. Interest offered on a fixed deposit is a maximum of 8% for senior citizens. 

Few people prefer to earn money from the share market through the dividend offered on shares. The dividend is the profit given by the company on shares.

The cost of 1 share in the IPO for Coal India was Rs 225 during the year 2010. At present, the price of its 1 share is Rs 235. Adjusting for the inflation of 12 years, the value of the claim has gone down.

However, the share of Coal India is giving an annual dividend of 10%. Annual profit on 1 share is 10% with respect to the value of the share. The benefits of investing in IPO for Coal India are more than the annual interest earned on Fixed Deposit.

IPO benefits for investors in hindi (आई.पी.ओ. से निवेशकों को फायदा)

आई.पी.ओ. के बाद कंपनी का लाभ और राजस्व बढ़ सकता है क्योंकि कंपनी को बड़ी पूंजी मिली है। पूंजी-प्रवाह के बाद व्यापार करने की संभावना में सुधार हो सकता है क्योंकि विशाल पैमाने की अर्थव्यवस्थाएं शामिल हैं। अधिक पूंजी मिलने पर कंपनी बेहतर प्रक्रियाओं का उपयोग कर सकती है। उच्च पूंजी प्रवाह के कारण शेयर के मूल्यांकन में सुधार हो सकता है क्योंकि पूंजी-प्रवाह के बाद कंपनी के बेहतर प्रदर्शन की उचित संभावना है।

यदि किसी कंपनी का लाभ और राजस्व बढ़ता है तो शेयरधारक लाभांश से कमा सकते हैं। अगर शेयर के मूल्यांकन में सुधार होता है तो निवेशक वित्तीय लाभ हासिल करने के लिए शेयरों को बेच सकते हैं। आई.पी.ओ. के बाद कंपनी के संस्थापक अपने शेयर बेच सकते हैं।

Advantages of IPO in India

Investment in an IPO offers several benefits. Companies get money to expand their business. IPO reduces the dependency of a company on loans. As the companies expand with more money, they can provide higher productivity, better products by using better processes, more employment, and business opportunities.  Investors get the opportunity to avail the benefits of investing in an IPO. Founders of a company can sell their shares in an IPO.

IPO oversubscription

It is a condition if an IPO gets higher demand of shares from investors than the total number of shares offered. Demand for shares in an IPO is more than the availability of shares because too many people want to get the benefits of investing in IPO.

 The IPO of Coal India was oversubscribed by 15.2 times. 63.16 crore equities garnered demand for about 960.36 crore shares. 

Role of an investment bank in IPO

Investment banks serve as an intermediary between corporations & investors during initial public offerings (IPO).  Investment banks help with underwriting services for an IPO. Investment bank purchases an agreed-upon number of shares & resells them on the stock exchange. IPO of big companies involves more than 1 investment bank. 

4 Types of investors in IPO

1. Qualified institutional investor (QII)
2. Anchor investor
3. Retail investor
4. High net-worth individual (HNI) or Non-institutional investor (NII)

Qualified institutional investors (QII) public financial institutions, mutual fund houses, Commercial banks & Foreign Portfolio Investors registered with SEBI are in this category. Underwriters try to sell large quantities of IPO shares to QII at lucrative prices before the start of the IPO. Selling shares to QII helps underwriters meet the targeted capital. SEBI mandates that QII should sign a lock–up contract for a minimum of 90 days to ensure minimal volatility during the IPO. Underwriters offer IPO shares to QII before the price is discovered in the share market.

SEBI does not allow the companies to allocate more than 50% of shares to QII. 

An anchor investor’s QII that makes an application of more than Rs 10 crore, is called an anchor investor. Such investors typically bring in other investors as well. Up to 60% of the shares meant for qualified institutional investors can be sold to anchor investors.

Retail investors These investors cannot apply for more than Rs 2 lakh in an IPO. The minimum allocation for retail investors is 35%.

High net-worth individuals (HNI)/Non-institutional investors (NII): Individuals that want to invest more than Rs 2 lakh are called HNI. Institutions that want to invest more than Rs 2 lakh are called noninstitutional investors (NII). The difference between QII and NII is that NII need not register with SEBI. If an HNI or NII applies for 10,000 shares & the issue is oversubscribed 10 times, they will be allotted 1,000 shares (10,000/10). HNI or NII are always allotted shares, whether the issue is oversubscribed or not.

SME IPO

Small and medium enterprises (SME) are also listed in the share market & SME can help us to avail the benefits of investing in IPO. 

SME IPO is a way for the Small & medium enterprise (SME) company to sell its shares to the public for the first time & get listed at BSE SME or NSE Emerge platform. Companies that have minimum post-issue capital of Rs 1 crore and a maximum of Rs 25 crore are eligible for SME IPO in India. 

Initial coin offering (ICO)

It is the cryptocurrency industry’s equivalent of an initial public offering (IPO). Investors can purchase cryptocurrency tokens in an ICO. The company sells its new cryptocurrency to raise money.