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Luck and Risks are two sides of the same coin

ICICI Securities 19 Aug 2022

“Nothing is as bad as it seems”, says the book – “The Psychology of Money”. For many, this is a controversial subject, but it is extremely important to acknowledge that- luck and risks are siblings. How are they interrelated? Why is it that luck and risks are siblings? They are unambiguous indicators of life's outcomes that are influenced by forces other than one's own efforts. You can't appreciate one without believing in the other.

It is assumed that effort and decision-making are responsible for 100% of any favorable outcome. You are a single player in this game with seven billion other players and an endless number of moving parts. Although we have some power over our destiny, many factors are beyond our control. That isn't good or bad; it simply is. These unintended consequences of activities beyond your control can have a greater influence than those you conduct knowingly.

Both luck and risks are associated with – Initial public offerings(IPO). How? Due to enormous over-subscriptions in many IPOs, retail investors are generally allotted only a few shares. Are you looking forward to making a quick buck through initial public offerings(IPOs)? Many investors are always enticed to try their luck in the secondary market.

How are IPOs associated with Luck and Risks?

Customers are always dependent on the nature of the firm and the valuations in place at the time of the offering. A solid business and fair valuations are required for a stock to be a smart long-term investment; this implies you must be willing to wait for business prospects to improve or the correct valuation to appear.

After you apply for an IPO, if you are eligible or fall within the reserved quota set out for your investor category type, you will be allotted the shares, else not. So, there is no guarantee of you being issued shares as part of the IPO. Typically, when there is over-subscription for an issue there are less chances of issuance of the shares. This is one of the primary reason of risks with respect to IPOs.

The book further adds that you should recognize the importance of luck and risk in your life and accept that you can't control everything. Concentrating on what you have control over, and the rest will take care of itself is the key. Subsequently, you have no control over either part of an IPO. It's only natural that the firm will aim to maximize issue proceeds by pricing it appropriately - and IPOs that occur during bull markets, may get away with high earnings multiples. Therefore, IPOs are likely associated with Luck and Risks, simultaneously.

After knowing, how IPO is all about luck and risks, should you still invest in IPO? YES! Allow us to tell you how investing in IPOs can foster your money and boost your portfolio!

Get Set Go:

Investing in IPO helps you to reach out to the roots of any organization. It can also aid in the long-term growth of your wealth.  Assume you take a call of investing in a startup company; if it succeeds in swaying the market, you will benefit from it!  Zomato, which went public last year is one such example.

Meeting your long-term goals:

Investments in initial public offerings (IPOs) are equity investments. Imagine you are willing to buy a new house! The money you've saved can help you achieve long-term financial objectives like owning a house! Besides, the Indian IPO market is also significantly expanding. According to the Hindu Business Line, over 3.5 times as much money as the $31,268 crore was raised through 30 IPOs in 2020–2021.

Transparency at its peak:

While placing the order for IPO, the price per security issued is explicitly stated. As a result, you get access to the same data as investors. This ensures transparency to the investors without any taints.

Buy Short, Earn Big:

If you want to invest in a small company that has the potential to grow big, the IPO price is frequently a preferred deal. This is due to the possibility of a discounted fee from the company. If you miss the IPO window, it may be tough to invest in that promising firm because the stock price may surge.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: complianceofficer@icicisecurities.com. Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. Please note, IPO related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein mentioned are solely for informational and educational purpose.

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