Any investor purchasing 100 shares of Infosys in 1993 for Rs 9,500 would have seen the value of his investment expand phenomenally to more than Rs 5 crore as of today.
A significant uptick in stocks over the last 3 months has led to a large number of investors making a beeline for the securities market. While some of the investors are erstwhile fence-sitters who had adopted a wait-and-watch policy, other investors are trying their luck for the first time in a market that is assuring spectacular returns. However, before embarking on an investment drive, a natural question which crosses the mind of a novice or an undecided retail investor is how to strategise one’s investment plan or how to take the first step for participating in direct equity markets.
For the uninitiated retail investor or the old-time risk taker wanting to chart the rough waters of capital markets, participation through an Initial Public Offer (IPO) would be the perfect entry point to access equity markets. Investing into the secondary market is a double edged sword and involves getting the right sector, the right company and the right price to generate good returns. More often than not, retail investors tend to get either all of the three parameters right or all of them wrong, which leads to revulsion from equity markets at large.
Data from various economic sources suggest that the Indian economy has started to gather steam and poised to traverse a higher growth trajectory. Going ahead, a large number of companies are slated to float IPOs for raising funds for various purposes.
In calendar year 2016 so far, 17 IPOs have been launched in the market, out of which only 5 are trading below the issue price. The other IPOs have ensured a positive return for investors in the range of 12 per cent to 100 per cent, making IPOs a safe and attractive investment bet. Another 15 companies have filed their Draft Red Herring Prospectus (DRHP) with Sebi and are expected to take the IPO route soon. Notable among companies which are expected to float their IPOs soon are ICICI Prudential, PNB Housing Finance and Hinduja Leyland Finance.
Investing through IPOs is a relatively safer option as the money invested through IPOs assures substantial growth over a period of time with the growth in the company. A classic and oft-quoted example of this fact is the Infosys IPO. Any investor purchasing 100 shares of Infosys in 1993 for Rs 9,500 would have seen the value of his investment expand phenomenally to more than Rs 5 crore as of today.
However, one should not play a blind game while investing in IPOs. A basic check of the company on several pertinent indices like past performance, market conditions and competitor strengths & weaknesses can go a long way in separating the chaff from the wheat.
(The author is market strategist at Geojit BNP Paribas)