An Initial Public Offering (IPO) success is heavily based on the number of people applying for shares. It is difficult to go through the low reputation IPOs and find the most potential IPOs. IPO investment is like the claim of future profits, only if you have made an informed decision. It is the stake in a company's future growth. To earn the most profit out of an IPO, investors can apply some strategies and grow money with upcoming IPOs. In the following 5 ways, you can understand profitable IPO secrets better.
Fundamental And Valuation Aspects
Consider the fundamental and valuation aspects of the Initial Public Offering before you bid. Learn as much as you can about the company going public. It may be a crucial first step but help you to grow money. There may be a lot of positive buzz around the issue, but it is not the surety of a profitable IPO.
Experts suggest applying at a cut-off price because cut-off bids always remain valid for allotment. Investors are required to choose the cut-off option at the time of filling the form. It shows the willingness of an investor to subscribe to stock at any price within the price band. However, only retail investors are eligible to apply at a cut-off price.
Let’s understand with an example. If the price band of an issue is Rs.110-120 a share and an investor bid at Rs.105 and the actual pricing comes in at Rs.108, then the investor will not be eligible for any share allotment. So, if an IPO is expected to receive an immense response and the price looks reasonable, you can bid at the upper limit of the price band i.e. Rs.120 here. In this way, you will maximize your chances of getting an allotment.
Number of Bids
Let’s understand with an example, a lot is of 22 shares and investors have to apply for a minimum of 16 shares and in multiples thereafter. To increase the chances of getting an allotment, multiple bids can be proposed by different members of a family. Suppose a family of three members has applied for an IPO with multiple Demat Accounts at the cut-off price, so, the chances to get an allotment will be better than one application. One can open an online Demat account with a registered broker easily.
Quality underwriters are more likely to be associated with quality IPOs. So, exercise extra caution and apply for an IPO with strong underwriters. However, it should be noted that large brokerage firms do not allow your first IPO investment. Usually, individual investors who are established, and often high-net-worth customers are allowed to apply for high profile IPOs. Keep an eye on upcoming IPOs.
A lock-up period is a contract between the company and the underwriters for 3 to 24 months that prevents investors from selling IPO stock. Only after lock-ups expiry, investors are permitted to sell their IPO stock. Experts say if insiders continue to hold IPO shares even after the lock-up period expires, it means the company has a bright future.
IPO allotment status
Investors can check the IPO allotment status at the BSE website or NSE website. Or you can visit the official website of the registrar of the company. Enter details like Issue Type, Issue Name, Application Number, PAN, DP client ID or as asked.
The Bottom Line
Spotting a profitable IPO may be difficult as it requires experience and fundamental skills but the returns can be worth the risk. Investors should be more focused to investigate IPO’s long-term prospects instead of trying to capitalize on a stock's initial bounce.