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IPO Investing Strategies for Long-Term Investors

by Businesszag
IPO Investing Strategies for Long-Term Investors

There are many ways to tap into the price fluctuations in the stock market to earn profits in the process. Some traders choose to focus on short-term price volatility and use these market movements to their advantage. Others, however, may prefer to remain invested in the market for several years and ride out short-term market volatility, with the aim of tapping into the long-term growth prospects of certain companies.

Irrespective of whether you are a short-term trader or a long-term investor, an Initial Public Offering (IPO) can be aligned with your trading or investment plan.

What Does an IPO Have to Offer Traders?

If you are a trader, you can focus on the potential listing gains that an IPO may offer. Listing gains occur when the stocks issued to the public via an IPO are listed on the exchanges at a much higher price than the issue price. So, by purchasing shares in the primary market and selling them at higher prices when they list, you can profit from the price difference over the short term.

What Does an IPO Have to Offer Investors?

If you have a long-term horizon in mind, you may want to remain invested for several years in the company whose stocks you purchase. Even in this case, you can still include an IPO in your investment plan and use it to your advantage.

However, unlike traders who focus mainly on listing gains, you will have to employ different strategies as a long-term investor. This is because your primary focus will be on the long-term growth prospects of the company and the potential capital appreciation it could offer you over the years.

5+ IPO Investing Strategies for Long-Term Investors

To make the most of an IPO as a long-term investor, you need to adopt the right investment strategies and techniques. This way, you can ensure that you remain invested in the stocks of your choice for the right reasons. Let’s find out more about these strategies and how you can implement them effectively to benefit from an IPO.

1.     Conduct Thorough Research and Due Diligence

Research and due diligence are long-term investors’ best friends. If you want to remain invested in the company and benefit from its profitability over the years, you need to make sure that the company is capable of generating profits over the long term. The Red Herring Prospectus (RHP) that companies file with the Securities and Exchange Board of India (SEBI) can be a good place to start. You can also explore other independent reports and read through analyst opinions to obtain more insights about the IPO.

2.     Focus on Strong and Undervalued Companies

One of the primary benefits that you can get by remaining invested in a company over the years is capital appreciation. Typically, this only occurs if the company is undervalued because when the market corrects itself, its share price rises. So, before investing in an IPO, take a closer look at the key financial ratios and metrics of the company and check its valuation. Metrics like the price-to-earnings ratio, price-to-book value and the like can help you assess the company’s true value.

3.     Invest in Disruptive Innovations

With many disruptors like digital transformation, AI and ML and sustainability propelling companies into the future, industry leaders in these segments have an edge over the others. By identifying and investing in these companies, you can give your portfolio the advantage of potential profitability from such disruptive innovations. Aim to invest in IPOs of companies that work on and introduce groundbreaking technologies, products and services that address unmet market needs.

4.     Look for Sustainable Competitive Advantage

A strong competitive advantage is necessary for a company’s long-term success. So, as a long-term investor, you need to look for IPOs of companies that have unique assets or characteristics, which give them a sustainable edge over their competitors. Some examples include patented technology, proprietary data, strong brand loyalty and exclusive access to valuable resources. Companies with such enduring advantages are more likely to weather economic downturns and changes in market conditions.

5.     Consider Post-IPO Market Performance

While past performance doesn’t guarantee future results, analysing how similar companies previously performed after their IPOs can provide valuable insights about what could be in store. If similar companies had earlier shown consistent revenue and earnings growth since going public, companies operating in similar domains may display a similar trajectory. Of course, this does not apply if the company has some inherent red flags like poor management or weak financials.

6.     Focus on Diversification

Diversification is a fundamental strategy for any long-term investor — including those interested in IPOs. It involves distributing your investment capital across a variety of assets to reduce the impact of any single investment’s performance on your overall portfolio. In the context of IPO investing, you can diversify your portfolio by allocating your funds across multiple companies that go public. Although these assets all belong to the same asset class (i.e. equity), this leads to sectoral and market cap diversification in your portfolio. 


The strategies outlined above can help you make the most of strong IPOs as a long-term investor. You can factor these techniques into your investment plan and proceed to choose the right IPOs for your financial portfolio. That said, before you invest in an IPO, you must have a demat and trading account with a stock broker of your choice.

And your search for a trusted stock broking partner ends with Bajaj Financial Securities. Open a demat and trading account today and seamlessly invest in the latest IPOs via the Bajaj Securities trading app.

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