Why do Powerful Brands Get More Success in IPO?

Why do Powerful Brands Get More Success in IPO?

Initial Public Offering (IPO) made its debut in the Indian stock market when Reliance Industries Limited issued shares to the public for the first time in 19771. Since then, the country has witnessed some of the biggest IPOs, last year being a milestone. In 2021, 63 companies collectively raised Rs 1.2 lakh crores through IPO, making it the highest amount ever raised in a single calendar year. It isn’t surprising that investors want to benefit from impressive listing gains and are making a beeline to invest in IPOs to get better returns and grow their money.

How the Big Sharks Fared in the Recent IPOs?

In the past three years specifically, IPOs of companies such as One97 Communications Limited (Paytm), Zomato Limited, Nykaa, Life Insurance Corporation (LIC), and SBI Cards and Payment Services Ltd has witnessed huge success. They are among the top IPOs to date based on their issue size. For example, LIC was oversubscribed by 2.95 times its original issue size of Rs21008.48 crores. Similarly, Paytm was oversubscribed by 1.89 times its original issue size of Rs18300 crores. Zomato was oversubscribed by whopping 38.25 times its original size of Rs9375 crores. Given the stellar performance of these companies, investors are now keenly looking forward to upcoming IPOs.

Key Factors That Drove the Growth

There has been a massive surge in new investors entering the stock market. Data shows that in 2021-22, 26 lakh new Demat Accounts were opening every month. This is because it is very easy these days to open Demat Account with a Depository Participant (DP). Bajaj Financial Securities Limited (BFSL) is one such eDP registered with the two depositories of India – NSDL & CDSL. You can open a free online Demat Account with BFSL within a few minutes and invest in upcoming IPOs easily. New participants are actively exploring investment opportunities in the stock market. Moreover, one cannot overlook the role of financial influencers. Today, Youtube influencers have increased the awareness about IPOs among new investors.

However, it is imperative to understand that the power of the brand name plays a significant role in the success of an IPO. The IPO space is gradually getting cluttered, and the brand image that can make a company stand out. Here are some ways companies build their brand story to attract and retain investor interest in their IPOs:

1. Financial Performance

Powerful brands are usually those which have consistently delivered good financial performance over the years. As far as startups are concerned, their current valuation and visible projected revenue growth are two determinants of whether it is worth investing in their IPOs. For example, Zomato is not profitable, but it is considered one of India’s most valued firms due to its projected growth.

2. Business Model

Powerful brands have a strong (for example, LIC) or unique (for example, Nykaa) business model which gives them an edge over the competitors. Such a business model indicates that the brand has a clear, sustainable strategy for the target market and its product offerings.

3. Prospectus

A prospectus is a legal and marketing document introducing the company to the public. Also known as red herring prospectus, it gives detailed information about the company, its financials, management style, promoter’s intention of using the capital raised from IPO and possible risks of investing in their IPO. Powerful brands spend considerable time, money and effort to make their prospectus appealing and tell their story effectively.

4. Marketing

Companies going public create a buzz around the IPO to garner investor interest and maximise the number of applications for the IPO. This is possible only with a well-thought strategic marketing plan. Powerful brands do their IPO marketing through multimedia advertising, social media promotion, sponsoring high-profile public events, investor relations, etc.

5. Investment Bank Partners

Powerful brands often partner with prominent and well-established banks the IPO underwriting. Such association gives brands more credibility in the eyes of investors.

IPOs That Should be on Your Radar

Riding on the tremendous success of 2021, the outlook for upcoming IPOs in 2022 looks  promising. The investor sentiment is likely to be upbeat due to significant momentum in the stock market. Expectation is that IPOs of several large companies, Small and Medium Enterprises (SMEs) and startups will roll out in the market and attract investor attention.

A few IPOs that you must watch out for are:

  • Ola
  • Byju’s
  • Flipkart 
  • VLCC Healthcare
  • Go Airlines
  • BoAt
  • Swiggy
  • PharmEasy
  • Harsha Engineers

The current market is hot for IPOs and a significant number of brands are tapping it to raise funds and increase their valuation. Make sure that you do thorough research on the company’s IPO before investing and apply only through trustworthy broking service firms.