Investing in IPOs has become popular again since last year, following earlier trends in 2004-2008 and 2015.
However, many people invest in IPOs for the wrong reasons. To avoid losses, it’s important to ask yourself three key questions before investing.
Why Are You Interested in This IPO?
If you’re considering investing in an IPO just because you like the company’s products, think again.
Being a consumer is different from being an investor. A good product doesn’t always mean the company will see long-term growth.
Avoid following the crowd, thinking that if others are investing, it must be a good decision.
Remember the technology boom of 1999-2000, when many investors jumped into dotcom companies that eventually failed. A similar trend occurred in 2007-2008 with the real estate and infrastructure sectors.
Ask yourself, for example, “Will Bajaj Housing Finance deliver returns like Bajaj Finance? Will ONGC Green Energy be a strong player in renewable energy?”
What is Your Investment Based On?
Consider what you know about the company’s business model, growth potential, financial stability, and purpose for raising funds.
Are they expanding, paying off debt, or acquiring new assets? Do your research on the company’s fundamentals to determine if the IPO price is fair or inflated.
Keep in mind that companies typically launch IPOs during bull markets when prices are high, as they want to maximize their returns. Not every IPO is a bargain, so don’t assume you’re getting shares at a low price.
Are You Buying Just to Sell?
Many investors buy IPO shares with the intention of selling them quickly, often on the listing day.
SEBI reports that most non-institutional investors, who invest more than ₹2 lakh in an IPO, sell their shares soon after listing, with around 54% of shares sold within a week.
While some IPOs offer quick profits, many do not. If you invest at a reasonable price and hold onto your shares, you’re less likely to lose money in the long run.
