An IPO is an initial public offering through which the company goes public by getting listed on the stock market for the first time.

An IPO is an initial public offering through which the company goes public by getting listed on the stock market for the first time. In this process the company offers its shares to the investors through the prescribed process and gets listed on the stock exchanges. While we have already reviewed the process in our earlier videos, here are a few insights on why an IPO is a good way to invest in equity markets.

First reason is early access to equity By IPO, the investor gets early access to the shares of the company. This early entry allows for listing gains in the short term and also for long term wealth creation. There are chances where quality stocks can be invested early in.

Next reason is that generally Valuations are cheap and not over-valued: Generally in IPO the stocks valuations are not highly overvalued because the stocks have to be attractive for the investors to get subscribed. Hence some value is kept for the investors for making gains on investment. So the IPO serves as a good means of creating wealth. Among the 11 IPOs being listed in 2019 on the Indian markets, 8 of the IPO delivered returns in the range of 7% to 95% against their issue price.

Another reason is Participation in the market increases: As per the norms, IPO application amount per lot would cost not more than Rs 15000 for retail investors; hence this makes it easy for all types of smaller ticket size investors to participate. The participation in Indian markets is very meagre as compared to its global peers, hence these norms supports the increase in participation by the investors. Also in times of high volatility in the secondary market, IPO markets are viewed as a safe haven.

Next is financial inclusion The stock market serves as a very important barometer of the economy and contributes significantly for its growth. Hence the investors who had not participated in the markets get a firsthand experience of the markets by investing in IPO. Also the IPO is viewed as a safer investment instrument than the secondary markets. Another important reason is Long term goals IPO serves as a good creator for wealth.

History is full of evidence that shares allotted in the IPO have helped investors create long term wealth. For example, DMART, IRCTC etc. have created enormous wealth for the investors and there are many more such examples. IPO forms a very important part of the investor’s investment for both short term listing gains and also for long term wealth creation. IPO should be viewed as an important investing medium with proper analysis from the pointers as discussed in this video.

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