There are 3 things that everyone should be aware of IPOs:
(i)IPOs are launched when market is expensive. Infact if you want to know whether market is overvalued or undervalued, then you can simply check the no of IPOs launched that year & get the answer. In 2013, there were 5 IPOs. With each passing year, as market became more expensive, the no of IPOs also increased. In 2017, when market was at its peak, 38 IPOs were launched. In IPOs, company owners are selling a part of their stake to public. They want maximum profit in lieu of their sold stake. When people start shelling out any amount of money in an expensive market, IPOs are launched.
(ii)5000 companies are listed in the market. Many of these companies are of great value. Then why suddenly market gets attracted to one new company getting launched through IPO. This is because whenever a company launches an IPO, they appoint a Merchant Banker which charges hefty fees to popularize the IPO through aggressive marketing. You often see full page advertisement of IPOs in newspaper. Everyone starts talking about IPO.
(iii)Many dream to invest in IPOs to take advantage of listing price. This means the day the IPO starts trading in stock market, it goes up in value. But in reality, more than 50% IPOs start trading at a price lower than the listing price. But media gives coverage to only those IPOs which are trading positively so that the next IPO becomes more attractive to general public.
Many a times, we simply invest in IPOs as we feel it is a new share. There is always excitement amongst us for new things. This is like purchasing a shirt today at MRP which we know will be available on discount few days later.
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