How IPOs can be a smart investment strategy to build wealth
Granted, not all IPOs make gold, but it’s not uncommon for a stock to double just a few months after its IPO.
Unless you were hiding in a cave with no internet, you would already know that 2021 was the year of IPOs. More than 51 IPOs hit the Indian market in October, raising a total of Rs 90,000 crore.
And for the investor who knows how to pick the winning IPOs, accumulating wealth in the short and long term has been a dream come true. Well, not all IPOs make gold; some have been missed because the business has not performed as expected.
But it’s not uncommon for a stock to double just a few months after its IPO.
Let me unpack that a bit and show you the 4 Unique Benefits of Investing in IPOs.
1: Advantage for early bird investors
With an IPO, you invest as the business moves from private to public. This means that you are investing in the hottest stocks of the company, especially when they are moving the fastest with huge potential for growth and expansion. And let’s say the company you’ve invested in has cutting edge, breakthrough solutions, explodes, and keeps growing. You benefit from a huge windfall of profit. Some IPOs are worth their diamond for investors at the right time. For example, Amazon.com Inc. launched an IPO in 1997 and valued each stock at $ 18. So if you had invested $ 5,000 in the Amazon IPO, you know how much it is worth today in December 2021.
2: Discounted investment. Big profits
Many companies offer their shares at the lowest price when they go public. And that’s because they can be small, fast-growing, under-the-radar businesses. But as the business grows and news arrives, the share price can skyrocket. And you are missing out on the only chance to buy its shares at a price much lower than its true value. Look at Paras Defense And Space Technologies Limited. The company went public on October 1, 2021 and the issue price was Rs 175. The current price at NSE is Rs 735.45. Which means it has climbed 320% in just one month.
3: More information to make a better decision
When a company goes public, it must provide a detailed prospectus that contains information such as its past performance, assets, liabilities, financial condition, risks, growth and future plans. In addition, the company must clearly mention the price per security in the IPO order document ensuring full transparency. So, as a retail investor, you also get the same details as the big investors. This allows you to make smart and wise decisions.
4: Massive momentum. Exponential growth
Companies that launch IPOs attract large investors, large numbers of investors, and huge media and PR exposure. So gain massive momentum, making those red stocks even hotter. And since there is no stock market history or stock chart, this is blank ground for investors. This is why you often see that IPOs grow exponentially than common stocks.
Today India has become a global hotspot for IPOs. Consider this: Route Mobile Ltd launched an IPO on September 21, 2020, with a listing price of 350, and it has jumped to 400.37% so far at NSE.
This means that you could have tripled your money on Route Mobile Ltd by simply buying its shares on the day it was listed. Consider this: Happiest Minds Technologies Ltd, since its IPO on September 17, 2020, has generated an annualized profit of 616.17%.
You could have made a fortune if you had targeted the Happiest Minds technology.
How to harness the wealth creation power of IPOs?
Time is of the essence. You don’t want to miss out on a private company that interests you, that goes public and becomes a definite winner. You should tap into the potential of so many undervalued and undervalued companies going public. You shouldn’t get caught up in an IPO frenzy. You need to do your due diligence, understand the factors, and study the research reports and fundamental analysis. The prospectus does not reveal everything. You should seek expert help. There are models that show the performance of an IPO with excellent predictability. An expert can guide you on where to invest; when to invest; how much to invest; when to go out; when to sell certain stocks for profit and how much to keep invested for the long term.
(By Videsh K Totaare, Managing Director & CEO, Archers Wealth Management Pvt Ltd)
Disclaimer: These are the personal opinions of the author. Readers are advised to consult their financial planner before making any investment.
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