Money-Wise: Do IPO investments promise assured returns? Here are the risks you must know about

IPO or an initial public offering has become one of the most lucrative investment options for investors who are targetting a lump sum amount of profit over a fixed capital.

India's IPO market is currently buzzing as some major companies like Hyundai Motor, Swiggy, Bajaj Housing Finance, and NTPC Green are set to open subscriptions to their IPOs in the days ahead.

The unlisted share price of Hyundai Motor India Ltd has seen a significant decline days before its mega IPO and the the grey market premium (GMP) has fallen by around 75 per cent.

Also Read:Money-Wise: Planning to invest in an IPO? Here are five things you must keep in mind

Such scenarios make it difficult for investors to predict the future of IPOs and take into consideration the risk factors involved in this investment.

Explaining the risk involved in investing in IPOs, Prashant Rao, Director & Head - Equity Capital Markets, Anand Rathi Investment Banking, said to WION, "It does not always guarantee quick gains, as the performance of newly listed stocks can vary based on multiple factors. While some IPOs offer immediate listing gains due to high demand, market sentiment, and favourable pricing, this may not always be the case. Stocks can also underperform or experience volatility in the short term."

"For long-term returns, the focus should be on the company's fundamentals, cash flow situation, growth potential, and its position within the industry," he added.

Watch:Surge in Indian IPO bids

The investors can achieve sustainable long-term growth if the companies have strong business models and expansion plans, however, an IPO's success depends on thorough research and marketconditions.

Here are key factors to look into while booking profit in an IPO

If the investors are planning to book profit on an IPO, the decision should not be made randomly but should be taken after looking into some key factors.

Anand Rathi Investment Banking's Director & Head - Equity Capital Markets, Prashant Rao, lists out these key factors for investors.

• When booking profits in an IPO, it's important to assess factors such as listing gains, market sentiment, and stock valuation and not go with the flow.
• Strong listing-day performance may offer short-term profit opportunities, while holding the stock could be beneficial if market trends and the company’s fundamentals indicate long-term growth.
• Investors should also monitor the lock-in expiry for major shareholders, as large post-lock-in sale can drive the price down.
• The company’s financial health, growth prospects, and planned use of IPO proceeds (such as capex) are also something based on which investors can form their decision on whether to hold or sell.
• Additionally, staying updated on analyst views and target prices can provide insight into future performance.