There is a lot of discussion about the IPO of the country’s largest insurance company. However, LIC’s IPO may be delayed. A large number of retail investors want to invest in LIC’s IPO. However, the volatility in the market has affected the sentiments of the investors. The decision to invest in IPO should be taken carefully. We are telling you some things that you should keep in mind.
How are the valuations and fundamentals?
Investors make the same mistake over and over again in investing in IPOs. Chasing hot themes is sometimes not beneficial. Technology-based companies were booming in the year 2021. But, not all did the investors any good. Paytm’s stock has lost two-thirds of its value against its issue price. Its issue price was Rs 2150. Right now the price of this share is running at Rs 634. The share price of Cartrade and PB Fintech has declined below the IPO price.
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Sneha Poddar, AVP (Retail Research), Motilal Oswal Financial Services, said, “Stock prices track the fundamentals of an underlying business. If the company is not making money or there is strong competition in that sector, then the shares of such companies may fall in difficult times. They go away. Then they take time to rise. Stocks of companies with strong fundamentals recover quickly.”
The focus of new age companies is on customer acquisition. In such a situation, the ability to make profits goes down in priority. Investors who cannot take high risk should wait till the company turns profitable. HDFC Securities Head (Retail Research) Deepak Jasani said, “Valuations matter a lot when it comes to new age companies. They are very expensive. Most investors do not understand the valuation of companies in IPOs.”
Do you really understand business?
Many veteran investors like Warren Buffet talk about understanding the business of a company before investing money. It refers to the company’s business model, margins, profit making ability and growth potential. In case of IPOs of new age companies, investors only see what the company does. They pay attention to the quality of its products or services, but ignore things like business model, margins. This is not right. If you are going to invest money in the IPO of a company, then you should have an understanding of every aspect of its business.
Clean Science & Technology and Amy Organics are specialty chemicals companies listed last year. Their shares are performing well. Similarly, the stock of Sona BLW Precision Forgings is also doing well.
Long term investment or just listing gain?
Most of the investors do not know why they are investing in an IPO. It is not advisable to invest in an IPO without an investment goal and exit strategy. You should know whether you are investing in IPO only for listing gain or you are looking for long term investment. When you invest money for listing gains, you are more likely to be successful in a rising market. If you are investing from a long-term perspective, then listing of shares should not make much sense to you. This will happen only if you understand the fundamentals of the company and the sector.
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