Effective Strategies for the IPO Investor
Investing in Initial Public Allotments, or IPOs for short, is exciting and challenging all at once. Many investors face challenges in getting allotments, while some may not even know how to handle stocks post-listing. Here we discuss three effective strategies that will help navigate the IPO landscape to better increase your chances of success and inform better decision-making.
The Allotment Challenge in IPOs
One of the biggest concerns for an investor is sheer competition for IPO allotments. Recent IPOs like Bajaj Housing Finance bring out in sharp focus the scale of competition. For instance, while the size of the IPO was about 6,500 crores, bids worth about 4 lakh crores were received. Things look pretty intimidating for an individual investor.
Since the demand is very high, the chance of getting an allotment is also lower. However, there are certain ways in which you can boost your chances. There is a possibility of application through multiple demat accounts. This is mainly applied using the help of family members. It also doubles the chances of getting an allotment.
Strategy 1: Ways to Increase Your Opportunities for Allotment
Multiple demat accounts can be applied through a simple effective method. For example, you have accounts in your name, spouse’s name, or even family members’ name. All such accounts can apply for one IPO. With this method, chances are very high to get allotment.
You need to ensure that your applications are thoroughly completed and submitted in advance of the deadline. You might even be tracking several IPOs and their application dates well in advance.
Strategy 2: The CARR Strategy Post-Listing
The CARR strategy is also accessible for people who did not receive an allotment for the IPO. It only includes investing money in the stock after listing based on fundamental analysis. The strategy is to invest a certain amount in the stock after listing, and if its prices go down, average down.
For instance, if you want to invest in a stock for Rs 15,000, you can invest half of it or one-third on the listing day. Then, when the stock price falls by a particular percentage, like 10%, you can invest the balance amount. Then, you’re not risking for potential dips but investing in fundamentally sound companies.
Conduct extensive research into the financials of the company, its current market position, and what are the future prospects provided before you consider investing. This is an analysis taken to keep you on your toes about right investment decisions.
Strategy 3: IPO’s through Price Action Analysis
Price action analysis of newly listed stocks can be used for breakout potential. In this strategy, the focus has been given on observations for any breakouts in a stock once it has got listed. For the use of price action, breakout entry spots may be made.
Track it after the stock lists: Track the price trajectory of the stock. Check if the stock has posted a significant fall followed by a reversal, as it might become a buying opportunity. The idea is to find an “IPO base formation” where the stock price stabilizes and then breaks out to higher levels.
To execute this strategy successfully, you should look for confirmation candles that show a breakout. You can trade at breakout confirmation or on a retest of the breakout level. As with any trading strategy, you must maintain a favorable risk-reward ratio.
Brief Explanations Of Above Strategies
Strategy 1: Higher Chances of Allotment
This strategy is related to how to enhance the probability of getting allotment in an IPO. One common strategy is filling up applications for IPO using different demat accounts, where he actually belongs, those belonging to his family members. Thus it raises the total probability of allotting the shares.
- Register with Various Accounts: Use accounts of family members to get registered for the IPO.
- Submit Applications: Submit applications at the earliest so you do not miss the boat.
- Monitor IPOs: Track upcoming IPOs and their subscription dates so you can plan the submission of applications.
These are steps that can give one a substantial increase in winning allotment in competitive IPOs.
Strategy 2: The CARR Strategy for Post-Listing Investments
The loss person in IPO allotments may want to know the CARR strategy is an investment strategy, where one takes advantage of market variations, having a systematic approach following the fundamentals analysis. This is how the CARR strategy works:
- Initial Investment: Decide how much you can invest into the IPO. In case you wish to invest ₹15,000 consider investing half or one-third on the listing day.
- Monitor the Price: i. From this initial investment onwards, watch the movement of the stock. As and when the price of shares goes down, invest the remaining amount at those low prices.
- Percentage Decline as Trigger: You can establish a percentage decline to add more money where you will invest. For instance, the same stock may drop 10%, and you increase your investment to balance the cost basis.
This is taking advantage of the averaging-down mechanism, and you can invest in fundamentally sound companies at times when the market situation is not good.
Strategy 3: Price Action Analysis for IPOs
The third strategy is the price action analysis to identify some entry point in the stock once it lists. This strategy remains mainly dependent on the observation of the price and the formation of a base at the initial listing.
The method to apply this strategy is described below:
Identify Base Formation: Once the stock gets listed, then one must observe when the price stabilizes after initial volatility.
- Look for Breakouts: After you establish a base, look for breakout signals. A breakout occurs whenever the stock price breaks above its earlier high.
- Set Targets and Stop Losses: Set your target based on what the breakout price has done and set stop-loss slightly below the breakout candle to manage risk.
This lets investors create profits from price momentum and meanwhile adhere to stringent risk management.
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Recent IPO Analysis
However, to have a hint at how these strategies may be applied in real life, it becomes essential to analyze recent IPO performances. Within 2024 alone, some 54 IPOs are hitting the market, with most of the stocks showing significant gains.
Jyoti CNC and Premier Energies have risen 253 percent and 151 per cent. Numbers alone talk about the huge potential of IPO investing if such an allotment is missed.
Wish list: You maintain a watchlist of fundamentally strong stocks. Applying the strategies described here will help the investor position himself optimally to seize such an opportunity when it comes along.
Conclusion: Navigating the IPO Landscape
The marketplace for IPOs stands as both a challenge and an opportunity for investors. You can approach hurdles pretty easily if you employ certain strategies like improving chances of allotment, the CARR strategy, and bringing the price action analysis into play.
Remember, good research and analysis determine which investments are successful in an IPO. Whether or not one gets shares allocated or decides to buy after it is listed, knowing what you’re getting into and being smart will help to achieve better outcomes.