As the name says, it’s all about offering shares to public for the first time. They are often issued by corporates looking to raise capital to expand or to become publicly traded company.
From the public perspective, it is a chance for them to own a part of company which they believe will reap profits for them. While some investors invest for long term perspective, some invest to sell in secondary market on listing day to make some quick profits. Individual investors should read the prospectus carefully and check out the CRISIL rating.
Why IPOs took a big hit
When the markets were high, there was huge demand to acquire stocks to make quick profits. And when the markets are crashed, this route has no takers and even big companies had to withdraw their plans to raise capital through IPOs and were looking for alternative sources of funds.
In 2008, when the market was high, companies offered their stocks in higher price bands and investors went crazy and bought these stocks and now many such stocks are trading at a discount of more than 50%. Investing in IPO market is very risky for retail investors as they would not have done research on the company. It’s advisable to invest in secondary market as the real price will be unleashed over a period of time.