IPO in 2021: What IPO are open, performance, Lessons

The question is, will the trend of robust listing gains continue?

Many enter the stock after listing and wonder if the stock has turned too expensive.

Before Investing in IPO

• Are you planning to invest in the IPO to make a quick profit on a listing day or do you want to hold the shares for a longer period?
• If you are in for listing gain, don’t get greedy. At least book partial profits.
• If you are buying for the long term you should know about the company’s background, its financial performance, and future prospect.
• And also
• Is IPO is made through an offer for sale or a fresh issue
• Who is doing the selling?
• What are they going to use the money for? Will the money be used for expansion of the company or old investors are selling.

Difference between IPO, FPO, and OFS

Mrs Bectors IPO was in the price band Rs 286-288 and comprised an offer for sale (OFS) of Rs 500 crore and a fresh issue of Rs 40.5 crore

In an IPO, an unlisted company issues fresh shares and goes public. IPO is a mechanism for an unlisted company to raise funds from the primary market and also list the stock in the stock exchange.

In a follow-on public offer (FPO), an already listed company issues fresh shares to new investors or existing shareholders. Companies take the FPO route after they have been through the IPO process. 

In OFS(Offer for Sale) is when promoter reduces stake in a listed company. No new shares are created. An OFS only results in a transfer of ownership from one shareholder to another and does not increase the share capital of the company. This facility is available only to the top 200 companies in the share market. The ranking is based on market capitalisation. 

In an OFS, the company sets a floor price and a buyer has to bid at or more than the bid price.  There is no minimum limit to participate in an OFS. A buyer can bid for even a single share in the OFS process. Once the bids are placed, shares are allocated to the bidders. The only requriement for a company to bring out OFS is for the compant to inform the stock exchanges up to 2 days in advance.

Some companies combine their IPO with OFS to give partial exit to promoters and to private equity (PE) investors. The issue of Narayana Hrudayalaya launched is an of an IPO and an OFS combined.

In IPOs and FPOs, the process to raise funds is lengthy as it involves issuing a prospectus and then a wait for receiving applications and allotting shares to investors. An OFS can be completed in one trading session.

What is Grey Market Premium

The  Grey market premium or GMP indicates at what price the IPO might list. The grey market is unofficial and investors track at the grey market price of an IPO to get the fixed gain of the stock. The grey market is tracked before the IPO listing and during the days from IPO start date to the allotment date. 

Let us see an example. If the company comes up with an IPO of ₹100 and the grey market premium is around ₹20 then one can expect that the IPO might list around ₹120 on its listing day.

But there is no reliability.