IPO : 2024 was a blockbuster year for the Indian IPO market. Several big-ticket IPOs hit the market, and the trend will likely continue in 2025. Investing in an IPO gallows youto participate in the company’s growth and enhance your wealth. If you have missed share allotment in the IPOs in the primary market, the opportunity is there in the secondary market. That said, maximising returns from recently listed IPOs calls for keeping in mind several things. What are these? Let’s find out.
Tips to Maximise Returns from Recently Listed IPOs
Do a Thorough Research
Do proper homework before you start investing in the listed IPOs. Understand the company’s operations, financials, competitive strengths, industry outlook, risk factors, comparisons with peers, and future business strategies. This will help you better evaluate a company and its prospects.
You can find all this information in detail in the company’s red herring prospectus (RHP) filed with capital market regulator SEBI. The RHP has everything you need to know about a company: its management, the segment in which it operates, and essential financial metrics.
The RHP often exceeds several hundred pages, and reading it may seem like a herculean task. However, it’s worth the effort, as it helps you understand the company’s details, which is essential for informed decision-making. You can download the company’s RHP from SEBI’s website.
Assess Pricing and Valuation
This is another critical consideration. After opening a Demat account with the help of a Demat app to invest in IPOs, you need to assess their pricing and valuation. An IPO’s price is typically based on several factors, including growth prospects, market conditions, demand from institutional investors, and more. However, the offer price may not be a true reflection of the company’s prospects.
You need to examine valuation metrics such as the price-to-earnings (P/E) ratio, the price-to-book (P/B) ratio, the return on net worth, etc., to determine whether the IPO is attractively priced compared to its peers in the industry. Comparing these metrics can give you a clearer picture of whether the valuation is reasonable. Don’t get swayed by short-term trends; look at the long-term picture.
Monitor the Listing Day and the Stock’s Performance
The IPO’s listing day is crucial as it gives you an idea of the market’s reaction to the company’s stock. Based on prices, the share price can rise, remain stable, or fall. If the stock price fails to perform well on the first day, don’t panic—it can happen. However, you need to monitor the stock’s performance post-listing closely.
This will give you a sense of whether the stock is good or bad. It also allows you to decide if you want to hold onto the shares long-term or sell them for short-term gains. Tracking the company’s news and its sector is essential, as events can impact stock prices and performance.
Decide How Much You Want to Invest
While all IPOs may seem lucrative and call for your attention, they aren’t. While it’s true that investing in different IPOs may allow you to diversify your portfolio, you shouldn’t put money in all of them after you open Demat account. Also, if you are confident about a company’s prospects and growth, decide how much you want to invest in buying its shares. Ideally, your investment amount should not be more than you can afford to lose.
You should be mentally prepared to absorb the setback if the stock fails to perform well per your expectations. However, proper research and investment can help you pick stocks of listed companies poised to do well.
Be Ready to Play the Waiting Game
IPO investment will test your patience. IPO investment is similar to playing test cricket, where your patience is tested to the core. If you have invested in a fundamentally sound company with good growth prospects, don’t panic.
If you panic and exit following short-term volatility, you convert notional losses into actual ones. Shares of listed companies may take time to perform. You need to give that time and not make any decisions quickly. A rushed decision will likely backfire rather than succeed and enhance your chances of loss.
Have an Exit Strategy
It’s often an overlooked aspect of investing in recently listed IPOs. You should have a proper exit plan to prevent getting caught on the wrong foot. To maximise gains or to keep your gains intact after investing, have a proper exit plan.
If you find the shares performing as per your expectations and reaching the price you wanted them to, you can contemplate selling them through your Demat app. On the other hand, if prices have dipped but you are confident about the company’s prospects of performing well, you can hold onto them for some more time before taking a final call.
Conclusion
Approaching recently listed IPOs with prudence can help you maximise returns. Extensive homework and playing for the long haul can increase your chances of gaining.
If you want to invest in an upcoming IPO and recently listed ones, look no further than HDFC SKY. Arming you with all the tools and resources needed to make smart investing decisions, HDFC SKY is your gateway to IPO investment and other financial instruments in a seamless and hassle-free manner.
