Initial Public Offerings (IPOs) are the first public offerings when a company gets listed in the stock market. In 2021, as many as fifteen Indian companies have launched their IPOs.
No matter the hype, IPOs are not a good choice of investment, mainly due to the following reasons:
- No guarantee of getting the shares: The largest risk factor in applying for an IPO is that you may not get the shares. If you happen to be a small-time investor and the number of applicants for the IPO are many, then the subscription mechanism of allotment in India will most likely not get you any share.
- High Valuation: IPOs are launched by most companies for the sole reason to allow Angel investors and venture capitalists to sell the amount of money they have invested. For the same reason, IPOs are priced expensively.
- The IPO hype: In most cases, the IPOs are intentionally overrated to gather the attention of big investors. Calculated move indeed!
- Risky: When an IPO slot is booked by an investor, the money required is booked for some time. The money remains with the company till the prices of the shares are determined.
- Time of IPOs: Most of the IPOs are launched when the market is bullish. This is a strategic way of extracting more money from the buyer to profit the seller.
Having mentioned that, many high profile investors like Warren Buffet, Benjamin Graham, and Parag Parikh have described investment in Initial Public Offerings as less autonomous to the investor that goes against the interests of a buyer.