Planning next year's investments? Keep an eye on these IPOs in 2022

If you take even a slight interest in the stock market, you must have come across a term several times – Initial Public Offering (IPO). The year 2021 proved to be a boon for IPO investors as it saw as many as 72 IPOs (just in the first nine months of 2021) hitting the stock market. While most of them provided excellent listing gains, a few failed to live up to their expectations.

This article will explain a little more about IPOs, the reason behind their growth, and why they make a wise investment choice. We will also discuss some blockbuster IPOs expected to roll out next year.

What are IPOs?

An IPO or Initial Public Offering refers to the first sale of a company's shares to the public. In other words, when a company issues its equity shares for the first time on stock exchanges, it is known as an IPO. These shares are subscribed to by the general public and listed on the stock exchanges for trading.

Therefore, the initiation of an IPO allows an unlisted private company to convert into a publicly listed company. Typically, companies float their IPOs for one of the following reasons:

• To raise funds for business expansion
• To grow and diversify using the public's money
• To facilitate the trading of its assets
• To monetise the investment of their private stakeholders

What Makes IPOs a Smart Investment Option?

The issuance of IPOs allows general investors to purchase shares of the issuing company before it hits the stock exchanges and helps them earn a profit. There are many more benefits of investing in IPOs, such as:

1. Listing Gains

This is one of the main reasons retail investors choose to invest in IPOs. Depending on the market hype and demand, an IPO share can open at a higher price on the stock exchanges than its issue price, i.e., the price at which it was sold to the public. You can, therefore, subscribe to an IPO to get the shares at their issue price and then sell them off at their current market price to make listing gains.

2. Potential to Earn High Returns

Many companies that launch their IPOs are on their growth journey and are poised to grow further. By subscribing to shares of such companies through IPOs, you become a part of their growth and provide yourself with an opportunity to earn high returns in the long run. Historically, some IPOs have given over 1000% returns to long-term investors.

3. Buy Shares at the Cheapest Possible Price

Subscribing to the IPO of a company with high growth potential gives you a chance to buy its shares at the lowest possible price. It's because companies usually issue IPO shares at discounted rates. And when these shares debut on the stock exchanges, their prices may skyrocket rapidly, making it difficult for you to get them at their original prices.

4. Gain Exposure to Equity

Exposing a part of your investments to equity becomes essential to gain inflation-beating returns. Historically, equities have been able to provide better returns than fixed-income instruments. Unlike regular stocks, investing in IPOs offers you an excellent opportunity to gain exposure to equity with lesser risks and expertise.

Blockbuster IPOs of 2021

2021 proved to be a record-breaking year in terms of the total number of IPOs launched in a single year. Nearly 72 IPOs hit the stock market between January and September, with companies taking a whopping $9.7 billion through initial share sales. 

Among the IPOs listed this year, the two most subscribed IPOs ever in India were Latent View Analytics Limited (subscribed 339 times) and Paras Defence and Space Technologies Limited (subscribed 304 times).

Some other blockbuster IPOs of 2021 include MTAR Technologies Limited, Nykaa, Nureca Limited, Laxmi Organic Industries Limited, Easy Trip Planners Limited, and Sigachi Industries Limited.

The Reason For IPO Growth in India

The boom in the Indian IPO market can be established from the fact that a large percentage of companies that got listed during the last two years have performed better than the Nifty50 index. Moreover, the S&P BSE IPO index is currently at its all-time high, delivering 103% returns to investors so far in 2021.

The main reasons behind such growth of IPOs in India are tech startups and healthcare companies. Together, such companies have raised more than Rs. 65,000 crores till now this year. And then, there are more such companies waiting in the pipeline to get listed.

The FOMO (Fear of Missing Out) factor that has driven Indian investors has led to the benchmark indices touching new highs. And as per the Reserve Bank of India (RBI), this boom in India's IPO market was long-awaited, with some world-class tech businesses developing in the country.

Upcoming IPOs to Watch Out For

On 30th November 2021, Rakesh Jhunjhunwala's backed Star Health Insurance IPO opened for subscription to the public. The IPO got subscribed 1.1 times in the retail market and will debut on the stock markets on 10th December. And there are still some big names to be listed next year, including RateGain Travel, Bajaj Energy, Go Air, Shriram Properties, Mobikwik, Aadhar Housing Finance, and Oyo.

Yet these three are the biggies for 2022. 

LIC:

India's largest insurance company and the government's most profitable enterprise, The Life Insurance Corporation, is expected to launch its IPO in the final quarter of FY 2022. By selling 5% to 10% of its stake, it will be India's biggest-ever IPO. 

Byju's:

Expected to list in the second quarter of 2022, the edtech startup is seeking to raise $400 million to $600 million through the upcoming IPO. With backing from international firms like Naspers, Tiger Global Management, Silver Lake Management, Byjus is widely seen as a high-value IPO. 

Ola:

The cab-hailing service plans to raise $1.5 billion to $2 billion, and its IPO is likely to be listed in early 2022. Its value will rise to nearly $12 billion if it succeeds.

While IPOs provide a great opportunity to gain significant returns, you need to remember not all IPOs do well in the long run; take One97 Communication, for instance. Hence, you need to be diligent on your part while subscribing to an IPO. It is recommended to always read the Draft Red Herring Prospectus (DRHP) before making a decision. It would help if you chose an IPO based on its merit and fundamentals and not the hoopla created around it.

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