While we live in a VUCA ( Volatility, uncertainty, complexity, and ambiguity) world, and are surrounded by these characteristics in all facets of our lives. These traits have always been embedded in the stock markets and their investors alike, thereby making it difficult for them to make consistent gains. However, Initial Public Offerings (“IPOs”) present a great alternative to invest in the financial markets.
An IPO, as the name suggests, is the first time a privately owned company issues shares to the public for them to be traded at one or more stock exchanges. A company may decide to go public for several reasons, viz.
To fund capital expenditure, etc. One MUST perform their own due diligence before investing in IPOs – “Mutual Fund investments (read as IPO vestments) are subject to market risk. Please read the offer document (read as Draft and Red Herring Prospectus) carefully before investing.”
However, looking at the health of the IPO market, in India, it seems that investors are ready to undertake risks. In 2020, we saw a whopping 15 out of 16 successful IPOs, despite the on-going effects of the pandemic, with total money raised amounting to Rs. 26,628 crores, more than 2x of the amount raised by companies in 2019.
The Indian economy is reflating at a pace that beats most predictions and is recovering faster than expected. The hold back in the second quarter of 2020 was much shallower than the first with financial savings of corporations and households have seen a rise. These are funds waiting to be converted into productive investments rather than keeping them in one’s tijori.
So, one might wonder why are IPOs on the rise, much like the unending number of Covid cases?
Logically speaking, a company goes public with the hopes of raising capital to primarily fund future business expansions. Naturally, growth opportunities exist in all sectors, however, according to this article, Consumer Goods (aka FMCG), Pharmaceuticals, E-Commerce, Automobiles (incl. components and OEMs), and Information Technology are going to be amongst the biggest winners in 2021.
While there are going to be winners and losers in these sectors, it is important to select that winner via IPO. One of the key challenges in selecting the winner is dearth of information pertaining to these companies which are hitting the public markets. While SEBI has made it mandatory for these companies come out with a
Red Herring Prospectus (RHP) which provides risks of the company, industry characteristics, company financials and other important details. Therefore, it is important to go through the RHP before investing. Below mentioned are some pointers to be analyzed to gauge a winner:
Keeping in mind the above factors, amongst others, we can look out for the following IPOs in 2021 (in my opinion) –
The IPOs listed above account for my personal views, and by no means should they be considered as investment advice. For those who want a comprehensive list of upcoming IPOs in 2021, take a look at this. You will find that there are multiple companies which have not been mentioned by me, merely because it runs into multiple pages!!
but it will behoove investors if they performed their due diligence before entering the markets.
Having said this, a vast majority of the retail investors conduct their trades and investments on the basis of ‘word of mouth’, and general blue-chip, dividend paying companies continue to be the darlings. While that might prove to be a safe bet, however, to betting on David amongst Goliaths is where wealth can be generated in the long run. The Draft Red Herring Prospectus, as dumb as the name sounds, is one of the best tools you will have to guide you through the unknown world of IPOs.
So read up, good luck, and wish you all a successful IPO fueled year.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of any agency, organization, employer, or any company. Fintuned Co. LLP shall not be held responsible in any manner whatsover, for any decision/action taken by readers on the basis of the content mentioned in the article. Readers are requested to exercise their best judgement before taking any decision/action. Fintuned Co. LLP shall also not be held responsible for any copyright infringement committed by the author in the process of writing and/or publishing this article and in the event any such offence is found, cooperate with necessary authorities to take remedial action
Thank you Yuva members for organising such a fun and informative lecture. We enjoyed it a lot. Meeting and learning from Mihir Sir was really an amazing experience. And this is not only our feeling but all the students enjoyed his lecture very much and look forward to many such events.
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