- March 30, 2021
- Posted by: Umesh Paliwal
- Categories: Blog, Featured
1. Is it good to invest in an IPO or IPO a good investment in India?
IPOs are the excellent source of making money in India. IPO means Initial Public Offering. This further means whenever a company is listing its shares on BSE or NSE they have to come up with an IPO. Now the question is how the investor makes money in IPO. Generally, investors apply in the IPO and there is a lottery system for retailers. If the investors are lucky and stock is good, they can make good money on listing day.
2. Strategy to apply in IPO
The biggest problem these days is the allotment. These days mostly all the IPOs are oversubscribed that means the lottery system have to come in. And lottery means you have to rely on your luck to make money. So, today I am going to give you a strategy to make handsome money in IPO.
Open minimum 50 bank accounts of all the known people in your circle. Now Open 50 new demat accounts. These banks and demat accounts will only be used for applying in IPO. Keep aside 7.5 Lakh (min 15k for each account) to apply in IPO.
On an average 15 good quality IPOs (check investorzone.in for good IPOs) opens up every year, which typically gives 25-30% of listing gain. And when you are applying from 50 accounts, 10% is the probability of getting allotment. So, in every IPO you can easily make ~18k-22k. In a year, this figure will go to ~2.7 Lakh to 3.30 Lakh.
ROI = 36 to 44% (the kind of return next to impossible).
The only thing is you need someone to manage these accounts.
3. How does IPO work in India?
IPO is basically an instrument in capital market to raise money for the businesses. IPO these days are also used to provide exit to the early investors in the company. The process of IPO is mentioned below.
a) The company looking for an IPO appoints an LM (Lead Manager). LM is responsible for raising money on behalf of company.
b) The LM prepares the document called DRHP (Draft Red Herring Prospectus). This document contains details like how much Money Company is raising, what is the objective of the IPO, what is the business model of the company, who are peers in the market, who is the management of the company etc. In short, it contains each and every detail about the company.
c) This DRHP then submitted for SEBI approval.
d) Once SEBI gives approval, the company needs to bring IPO within one year.
e) Then finally a RHP (Red Herring Prospectus) is filled before the actual launch of IPO.
f) Then IPO is opened for 3 days to the investors to apply.
g) Then after 6 days of closing, the IPO gets listed on BSE and NSE.
Hope the process is understood as to how IPO works in India.
4. Can IPO make you rich?
Yes, of-course. If you pick up good IPOs and keep them in the portfolio, it can make you rich. The star IPOs of 90’s i.e. Infosys, HDFC Bank, Hero Motocorp, Wipro, Reliance Industries etc have made investors millionaires. However, finding such companies is the most difficult part. There would be 1000’s of companies listed at that time might have been dead today. So, finding a great business and stick with them for longer duration is a secret mantra of making big money in the IPO.
5. How is IPO priced?
IPO pricing depends upon many factors. In DRHP (Draft Red Herring Prospectus), the draft which is filed to SEBI for approval of IPO has the column wherein Lead managers provide the basis of issue price. They compare the price of stock with the listed companies and try to find out the right price at which investors also make money. The price of stock is also dependent upon the prevailing condition of stock market. If the market is in bull mode, the IPO can be priced higher and vice-versa. The price of IPO is also depend upon the factors like monopoly of the business, great management, growing business etc.