How Financial Investors Changed IPO Market in India

Investors of all types sought to safeguard their investment by taking over as many management functions as they could. But emergence of IPO market in India changed the ecosystem for all. Initially, investments were small and shareholders few. A firm is similar to a unit of a household and the number of stake holders involved manage this unit – in ownership and execution – limited to the people involved. Selective traders invested in companies they were acquainted with first hand. IPO opened up market to the retail investors.

As markets grew, the scales of industrial production (and of service provision) expanded so do online trading in India. As knowledge evolved and specialisation acquired – it was no longer feasible or possible to micro-manage a firm one invested in. Actually, separate businesses of money making and business management emerged with the advent of IPOs. It was no more multitasking but specialised roles for each individual. An investor was expected to obtain high yields on his capital – not in industrial management or in marketing. An advisor was expected to advice and manage, not expected to be associated in tackling various issues personally pertaining to making losses.

All the above stakeholders of financial market were important traders who opened market for plethora of IPOs, thereby making new companies obtain funds in short period of time. This increased valuation of their stocks in India.

Thus, due to emergence of established IPO ecosystem, two classes of investors emerged. One type supplied firms with capital. The other type supplied them with management skills, latest pitches, marketing techniques, clientele vision, know-how, technology, intellectual property and a sense of direction.

In many cases, the strategic investor also provided the necessary funding and are key drivers of IPO. But, with more involvement, regulatory policies were made, a separation was maintained for ethical transactions. Risk capital and venture capital funds, for example, are just financial investors. So do, to a larger extent, financial institutions and other investment banks and. IPO gave rise to many types of investors through online share trading platforms in India.

The financial investor represents the past they are also IPO investors but they mostly deal with low risk high net worth companies. Its money is the outcome of past – profit making or loss making and right or wrong – decisions. For “exit strategy” they rely on quick profits. The IPO financial investor is always on the profit making drive, looking for willing buyers for his stake to register profit after appreciation in IPO stocks. The IPO transparency and technical analysis made them turn their stocks to mint money using exit strategy. The financial investor has almost no interest in the corporation’s management. Ideally, his focus is on putting money that buys for him; a good market and a good product managed by a qualified management. But his expectation of the from “qualified management” are limited compared to that expected by the strategic investor.

Conversely, the strategic investor in IPO, represents the real long term accumulator of value. However, he stays connected to the company for longer term and gets involved with the company.

The financial investor is satisfied with a management team which maximizes value before opening IPO stocks. The price of his stocks is the indicator of his success in the market. This is also known as bottom line short term investment which involves operators in the capital markets. Whenever a question arises in the mind of a trader on how to invest in ipo – the smart answer is to invest like a financial investor. Because a financial investor stays invested in different ventures and companies, he has no interest in long term commitment, nor the resources to get seriously involved in any one of them. This way a trader can make profits in online share trading by becoming an intelligent financial investor.

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