The coronavirus pandemic has accelerated the growth of the digital marketplace — from food delivery and online payments to construction companies — and the ongoing initial public offering (IPO) frenzy in the country is set to be rightly dominated by new-age tech businesses. The coming months will see the entry of several players into the public market, unleashing a flurry of big investments in the digital economy. Among the hottest IPOs likely to hit the market in the coming months are those of food aggregator startup Zomato, Glenmark Life Sciences (a wholly-owned subsidiary of the Mumbai-based Glenmark Pharmaceuticals) and GR Infraprojects (Udaipur-based integrated road engineering, procurement, and construction company).
IPO listing nowadays has become easy and may offer quick returns, notwithstanding the risks involved. Therefore, it is important for potential investors to do extensive market research before buying shares of any company that are freshly listed or already in the market for some time.
Here's what you need to do to make the most of this IPO frenzy:
Move early and with determination: Simply put, the IPO by a private company means the first time that its stock is sold to the public. Most good IPOs are backed by huge industrial demand and hence, they end up offering a very tiny allotment to retail investors. So, retail investors need to move early and with determination.
Minimise your risk: Major institutions, backed by their teams of researchers, are able to spread their risk over many IPOs. Individual investors, too, should try to minimise their risk similarly. The crucial first step is learning as much as you can about the company going public.
Choose wisely: Try to select an IPO that has a strong underwriter — a major investment firm. But that is not to say a big investment bank won't bring a dud to the market.
Learn about the risks: Be wary of the broker who is pitching an IPO too hard, and read the prospectus of the company yourself. The prospectus could be an interesting read but it lays out the company's risks, opportunities and uses for the money raised by the IPO.
Exercise caution all the way: As there is always a lot of uncertainty surrounding IPOs, be cautious all the way. Skepticism is considered a healthy trait in the IPO market.
Find out the length of the lock-up periods: Consider waiting for the ‘Lock-Up' period to end. It is an agreement between the underwriters and the company insiders to prohibit investors from selling shares and can extend from three months to up to 24 months.
Ultimately, keep in mind that investments are subject to market risks and it is best to keep testing your skills.