A name familiar to many Indians, Uber’s IPO has been announced and is expected to come up for book building in the coming days.
While there are significant investment opportunities available in domestic markets, international diversification can be an important for investors. International diversification not only reduces volatility, but also helps in enhancing returns. Over the last ten years, Nifty has delivered returns of 12.9% CAGR, similar to S&P 500 returns, but NASDAQ has done better, with returns of 16.9% VAGR, but since the rupee has depreciated, returns to an Indian investor would have been 16.8% CAGR for S&P 500, but the Technology heavy NASDAQ has done significantly better, with returns of 20.8% CAGR.
Clearly the technology space has appeal to investors, and is a platform of choice for many innovative companies in the technology space for an IPO. For instance Baidu and Alibaba chose NASDAQ for their IPO. A name familiar to many Indians, Uber’s IPO has been announced and is expected to come up for book building in the coming days. The company is proposing to raise about USD 10 billion in the IPO, making it the largest IPO after Alibaba in 2014. The company expects to command a valuation of USD 90 to 100 billion. Many Indians may have an interest in this stock, and it is possible for them to invest in the IPO.
Resident Indians are allowed to purchase up to $250,000 per financial year (April-March) under the Liberalized Remittance Scheme (LRS). This amount can be used for any current account or capital account transactions, which can include among others buying equity and debt securities listed abroad.
An investor would need to open an account with a foreign broker to start investing and thus subscribe to the IPO by placing an indication of interest. Some Indian brokers also have a tie up with foreign brokers which can make this process easier. The investor would need to fund the account with US dollars, for which the investor needs to follow the process laid down by RBI.
The investor should study the IPO prospectus which is available at the Securities and Exchange Commission website, and study broker reports and make a decision about whether they wish to invest in the IPO. They can invest in the IPO via the brokerage account they have funded.
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For this they would need to place an indication of interest via the brokerage account. This is one way to invest in the IPO. An alternative mechanism is to buy ETFs that are IPO focused. Another alternative channel would be to invest via mutual funds.
Renaissance capital is a firm that specializes in investing in IPO’s and they run an ETF as well that invests in IPO’s. Some mutual funds especially technology funds would invest in IPO’s like Uber. Another way would be to buy stock of companies that have made an investment in Uber, an example of such a firm is Softbank. It should be kept in mind that through this approach one would get exposure to other investments in the basket as well. If the investor has a strong interest in Uber’s IPO then the best strategy would be place a bid via a brokerage account.
(This article has been written by Rajiv Singh, CEO Stock Broking at Karvy. Views expressed are author’s own)