IPO Listing Gains

Whenever a new product launches in the market, the excitement for the same is par excellence. Lately, this has become evident with the new companies getting listed as well. Now a lot of investors bid on IPOs for the IPO listing gains and most of the time succeed as well.

But the question is, what is IPO listing gain, what is the meaning of IPO, and how can you benefit from it?

In this article, let us answer all your queries, so let’s begin!

What is Listing Gain in IPO?

Any company that wants to get listed on the stock exchanges has to go through the process of IPOs. Now they can have various reasons to raise capital through IPOs including, clearing their pending debts, expanding their businesses or fulfilling the operational costs.

Every company first understand and completes the valuation of the entire business. Based on that, they decide on an offer price for the investors. Now, depending on the popularity and demand the retail investors apply for IPO and place their bids accordingly.

In response to the bidding, the shares are allotted to the investors. After the allotment, the shares are listed on the stock exchanges. Now depending on various factors, the listing price can be either higher than the actual offer price or even lower than that.

So, the positive difference between the IPO listing price and the offer price on the day of IPO listing is known as the  IPO listing gains.

Listing gains helps the short-term investors to make the most out of the IPOs and exit taking away profits.

Investors often enter the primary market for the listing gains only. You can choose the right IPOs and then can sell the IPOs on a listing day to make great profits.

Now that you know that it can be highly profitable for the investors to get the maximum profits out of the IPO listing, let us have a look at how to gain more on IPO listing.

How to Get IPO Listing Gains

“All that glitters is not gold” and this is true in the case of IPOs as well. Not every IPO will lead to listing gains and not every IPO will be a success as well.

So, what are the factors that can help you in figuring out how you can get the IPO listing gains? Let us have a look.

Always Have an Exit Plan

A little planning always goes a long way, therefore, it is essential for an IPO investor as well to plan the trade beforehand.

There are various IPOs that list at a good price but then eventually do not continue the bull run. So, it is important that you know your target and also an exit strategy well placed.

It will ensure that you don’t suffer losses waiting for the right exit point.

Read the DRHP

The companies issue a Draft Red Herring Prospectus when it is planning to go public with their IPOs. It has all the details of the company's objectives, financial statements, and everything important for an investor.

It is therefore important for an investor to go through the details so that you know whether your financial goals are aligning with the company’s long-term interests.

Trust Your Decisions

Some IPOs are not perfect for listing gains but can have a good overall profit opportunity. So, if you have studied the company properly and carried out the fundamental analysis, you should not worry even if the IPO does not have great listing gains. If the fundamentals are strong, then there is a possibility that it will give you great returns in the long term.

Keep An Eye On GMP

Grey market premium plays an important role in determining the listing gains. It is the extra amount that an investor is willing to pay in the grey market for a particular IPO. Depending on the demand, the GMP can either increase or decrease.

But, Why GMP is important in IPO?

A positive GMP is usually a sign of good listing. Although, this is not always true.

So, you can analyze it properly and then make a decision based on the value.

Look for Subscription

The demand and supply play an important role in the decision of the listing gains. If the demand for an IPO is more, it is called an oversubscribed IPO. A lot of investors link the oversubscription to the higher listing price. While this can be true in the majority of cases but not always.

It is still a good practice to look at the subscription status of an IPO.

Now, a majority of the potential of listing gains depends on the listing price of the IPO. It is therefore important that you know the factors that can affect the IPO listing price.

Let us quickly have a look.

How IPO Listing Price is Decided

IPO listing price as we know now is the debut price of an IPO in the stock exchanges. Apart from the brand visibility of the company, there are a lot of other factors as well, that influence the listing gains of an IPO.

• The listing price of an IPO is majorly affected by the demand and supply of the IPO.
• Company’s objectives behind the IPO.
• Grey market premium
• The sentiments of the investors

These are the major factors that often drive and affect the listing prices of the IPO because of which a lot of potential investors make good profit from the listing gains.

IPO Listing Gains Tax

Now the share market profit is often taxed. But is the case with IPO listing gains as well? The answer is yes! If you have benefited from the IPO listing and come under the taxable bracket, then you have to pay tax on IPO listing gains.

There are two different types of ways in which a taxpayer is taxed on IPO listing gains.

• If you decide to sell the shares on a listing day or within a year, the tax is 15% of your total profit. This is termed short-term capital gain.
• In the case where you hold the securities for more than 12 months, the tax is 10% if the earnings exceed ₹1,00,000.

Let us understand this with an example. If you got an IPO for ₹200 offer price and you purchased a lot of 75 shares.

Now, this lists at ₹250 per share on a listing day and you decide to sell all your shares. The IPO listing gain here is ₹3750.

Tax= ₹562.5

So, if you have made some listing gains on the IPO, you should be aware of the taxing as well.

Should You Invest in IPOs for Listing Gains

The final question that an investor often asks is, should I invest in IPOs for listing gains or not? While the answer to this question can be different subject to a lot of factors, the bottom line remains, you should analyze first and then act.

It is seen over the years that a lot of investors have had the privilege of enjoying even 100% returns from the listing gains, but this is not always the scenario.

Therefore, it is important to study all the IPOs carefully and analyze all the factors. It is also beneficial if you enter the investment, keeping in mind your long-term goals as well.

In these cases, even if you fail to take the benefit of the listing gains, you can still hold the positions and sell them whenever you think is the right time to exit.

Conclusion

The listing gains on IPO can yield great profits to investors if the right IPO is picked and then invested. There are major factors like the market sentiments, the objectives of the company, grey market premium, etc, that determine whether or not there is a possibility of the listing gains.

It is right to invest in the IPO market for the listing gains but always make sure that you choose the right path because not all investments are the same.

If you are looking to invest in IPOs, open a Demat account today!