Initial Public Offerings (IPOs) continue to attract strong interest from retail and institutional investors alike. But what makes IPOs so appealing, especially when investors can just buy shares from the secondary market?
The answer lies in access, opportunity, and strategic advantages. Let’s break down the key reasons why IPOs remain a hot favorite among investors.
1. Access to New Investment Opportunities
The primary appeal of an IPO is that it offers access to companies that were previously unavailable to public investors.
These are often high-growth companies with disruptive potential.
For long-term investors, IPOs offer a chance to get in early, before valuations climb post-listing.
2. Potential for Quick Listing Gains
One of the biggest motivations for IPO investors is the potential for listing-day gains.
IPOs are often aggressively marketed, generating strong demand.
When issues are oversubscribed, investors who don’t receive allotment often try to buy at the time of listing, pushing up the price.
This dynamic allows early investors to exit with profits quickly, enabling faster capital rotation.
3. Supporting Market Liquidity and Stability
Beyond individual gains, IPOs play a broader role in maintaining the health of the equity markets.
New IPOs absorb investor liquidity, preventing excess funds from inflating valuations of existing listed stocks.
This helps control P/E ratios and reduces systemic risk of market corrections caused by overpriced equities.
How IPOs Help Investors Churn Capital Efficiently
Efficient capital rotation is another reason why investors, especially high-frequency participants, love IPOs. Here’s how IPOs facilitate this:
1. Quick Turnaround and Allotment
Thanks to regulatory reforms and efficient book running lead managers (BRLMs):
IPO allotments now happen within a week to 10 days.
Funds are locked for a shorter duration, allowing faster reinvestment cycles.
Even if investors profit in just 60–70% of IPOs, it becomes a viable strategy.
2. Power of ASBA for Retail Investors
The ASBA (Application Supported by Blocked Amount) system has made IPO investing smoother and smarter:
Investors don’t pay upfront; funds are only blocked in the bank account.
Interest continues to accrue until the funds are debited post-allotment.
This makes it easier for small investors to participate without losing liquidity.
3. IPO Funding for HNIs
High Net Worth Individuals (HNIs) can also leverage their capital through IPO funding:
Brokers and NBFCs offer short-term loans for IPO applications.
Despite the cost of borrowing, healthy listings often result in net positive returns.
This strategy helps HNIs maximize allocations in oversubscribed issues.
4. A Safer Entry Point for New Investors
For first-time equity investors, IPOs can be a low-risk entry point into the market:
IPO-bound companies undergo rigorous due diligence, regulatory checks, and compliance vetting.
This added layer of scrutiny gives greater confidence to new investors compared to choosing among thousands of secondary stocks.
IPO vs. Secondary Market: Which is Better?
While both IPOs and secondary market stocks have their place in a portfolio, IPOs offer distinct advantages:
1. Simplified Due Diligence
In the secondary market, the research burden is on the investor.
In contrast, IPOs involve pre-vetted disclosures by merchant bankers, auditors, and regulators—reducing investor workload.
2. Attractive Valuations in Select Cases
IPOs—especially mid-cap or lesser-known names—can be more reasonably priced to encourage participation.
BRLMs aim for a successful listing, so they tend to leave some room for investor gains.
3. Portfolio Diversification
IPOs often introduce new-age sectors or niche players that aren’t yet present in an investor’s portfolio.
This helps in diversifying sectoral and company-specific risk.
Conclusion: IPOs Offer Access, Agility, and Alpha
IPOs present a compelling mix of opportunity, efficiency, and early-mover advantage. While not every IPO is a winner, well-researched investments can result in strong gains—both short-term and long-term.
Whether you’re a retail investor looking for listing gains or an HNI leveraging capital for IPO funding, the IPO market offers a strategic edge. Just remember: due diligence is key.
