Pre-IPO Investment: An Alternative to IPO Non-Allotment

Pre-IPO Investment: An Alternative to IPO Non-Allotment  

If you ever thought, "What if I could buy shares even before the IPO and sell them for a hefty profit once it lists?”-then you're definitely on the right track. This concept is called pre-IPO investment.  

What is Pre IPO Investment?

It is a strategy in which one can buy shares before they get listed on the stock exchange. Let's better understand this with an example. 

Example- Tata Technologies was priced at around Rs.475 before its IPO and listed at about Rs.1200-companying handsome returns.

Another similar case was that of cricketing legend Sachin Tendulkar, who had invested Rs.5 crore in Azad Engineering at a rate of Rs.136.92 per share. Now, his initial investment could be worth around Rs.72.59 crore with shares trading above Rs.1500. 

Similarly, the Japanese group SoftBank invested $450 million in the firm pre-IPO, and by the time Swiggy went public, SoftBank's holding was worth $1 billion. 

What is Pre IPO? 

Before going into pre-IPO, knowing how companies stand in the initial stages is very important. A company of entrepreneurs typically starts with "promoter capital," using their savings. In this case, shares are developed at inception but are always "unlisted" because they are not sold on any of the stock exchanges. Such shares are called Pre IPO unlisted Shares For that reason, one needs to get in touch with brokers who specialize in unlisted investments to get the "unlisted" shares. 

Pre-IPO shares are, therefore, just a hair's breadth from being listed on an exchange. Here, larger investor-private equity firms or venture capitalists might sell some of their shares ahead of the IPO. These shares frequently trade on a pre-IPO market, and because of this, demand is high in light of the imminent IPO, where potential investors flood in. 

Detailed video:

How to Identify Pre IPO Stocks?

As soon as the DRHP is filed with the regulators, a pre-IPO phase is evident. The regulator gives its nod to the DRHP, and later issues the RHP, so effectively confirming the IPO. 

Invest in pre IPO Companies 

If you feel frustrated because no IPO allotments are happening or think you don't have the right luck then can invest in pre IPO companies. The concept is simpler. Pre IPO companies are such companies that are in the process of launching an IPO but by that date, they are not listed on the Indian Stock Exchange. 

RHP and Gray Market Premium (GMP) 

RHP provides the financials of the company along with a price range for the IPO; so that market experts can gauge the listing performance. When there is a high demand for a share pre-IPO, its price may increase, thereby creating a "gray market premium" or GMP. For example, an IPO's listed price might be Rs.100, but the pre-IPO shares traded at Rs.130, which now has a Rs.30 GMP. Buying shares at Rs.100 pre-IPO and selling them on the gray market at Rs.130 can earn you a quick profit without having to wait for the listing day. 

Balancing the Risks 

Where there is reward, there is risk. Pre-IPO markets are unregulated; hence, one has to check about a broker's background and credibility. SEBI doesn't regulate pre-IPO deals; hence, there is a possibility of fraud. In addition, when you are investing in pre-IPO shares, lock-in periods are generally six months after listing; hence, one cannot sell those shares immediately after listing. 

Where to Buy Pre IPO Shares? 

Numerous brokers offer services to buy pre IPO shares. However, since this market isn't regulated, caution is to be exercised at a minimum, and research is done on the broker before deciding to use them. Using listed and also reputable brokers such as Motilal Oswal would provide an added degree of comfort. While they don't have a section for unlisted shares on their website, existing Demat account holders can invest in pre-IPOs on receiving calls or messages.  

Pre IPO Investment Platform 

There are various pre-IPO investment platforms available in the market. Some are described below: 

1. Stockify

2. Axis Capital

3. ICICI Securities

4. Kotak Securities

5. Edelweiss Financial Services. 

Pre IPO Shares list 

Below is the pre IPO stock list:

• HDB Financial Services Limited (Share Price Rs.1240).

• Hexaware Technologies Limited (Share Price Rs.985).

• Oravel Stays Limited (Share Price Rs.54).

• Imagine Marketing Limited (Share Price Rs.1550).

• National Securities Depository Limited (Share Price Rs.850). 

Conclusion

Luck is what determines the allotment of IPOs, and you would end up buying only one lot. With a pre-IPO investment, though, you get full control of the shares and the quantity you buy. Once you have invested in a pre-IPO, you can sell the shares if you wish to avoid the lock-in period of six months. For those who haven't had success with their allotments of IPOs, a pre-IPO investment is such an exciting alternative by which potential profits can be made. 

If this information has been useful, please forward it to friends who are likely to face issues with IPO allotment and are interested in pre-IPO opportunities.

DISCLAIMER: This is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.