Investing in IPOs (Initial Public Offerings) can be an enticing opportunity for many investors, especially when the stock market is performing well. Today, we’ll delve into two IPOs: Office Space Solutions and GSM Foils, a small and medium enterprise (SME) IPO. By the end of this discussion, you’ll have a better understanding of whether you should invest in these IPOs and what factors to consider before making an investment decision.

Firstly, let’s explore what an IPO is. An IPO, or Initial Public Offering, is when a company offers its shares to the public for the first time. This allows the company to raise capital from public investors. Companies typically use this capital for growth, expansion, or other strategic initiatives. There are two types of IPOs: Offer for Sale (OFS) and Fresh Issue. In an OFS, existing shareholders, such as promoters, sell their shares. In a Fresh Issue, the company issues new shares to raise funds for its own use. Generally, a Fresh Issue is considered better for investors as it indicates the company is raising money for growth rather than for existing shareholders to cash out.

Let’s start with the IPO of Office Space Solutions Limited. This company is primarily involved in providing co-working spaces, which have become increasingly popular, especially in major cities like Delhi, Gurgaon, Mumbai, Bangalore, Hyderabad, and Kolkata. The concept of co-working spaces allows businesses to rent office space on a per-seat basis, which is cost-effective compared to leasing an entire office. This model is particularly attractive for startups and small businesses.

Office Space Solutions Limited was incorporated in 2014 and has seen significant growth. However, like many businesses, it faced challenges during the pandemic, which impacted its financial performance. Despite this, the company has managed to bounce back as the trend towards co-working spaces continues to grow.

The IPO for Office Space Solutions Limited opened on 22nd July and will close on 27th July. Investors need to buy a minimum of 39 shares, which amounts to ₹14,937 at the upper price band of ₹383 per share. Retail investors can invest a maximum of ₹1,94,181 in this IPO. The company aims to raise ₹598 crore through this IPO.

When analyzing an IPO, it’s crucial to look at the company’s financial performance. Office Space Solutions Limited has shown impressive revenue growth over the past few years. In 2021, the company reported a revenue of ₹178 crore, which increased to ₹257 crore in 2022, and further jumped to ₹545 crore in 2023. The revenue for 2024 is projected to be ₹616 crore. Despite the revenue growth, the company has not yet turned a profit. In 2021, the company reported a loss of ₹42 crore, which increased to ₹57 crore in 2022, but decreased significantly in 2023. While the trend shows improvement, the fact that the company is not yet profitable is a point of concern for potential investors.

It’s essential to understand that investing in a loss-making company carries risks. Investors are essentially betting that the company will eventually become profitable. The increasing revenue suggests that the company is on the right path, but it’s important to consider whether the co-working space model will continue to thrive and whether Office Space Solutions Limited can manage its costs effectively to turn a profit in the future.

Another critical factor to consider is the grey market premium (GMP). GMP is the premium at which IPO shares are traded in the grey market before they are officially listed on the stock exchange. A high GMP indicates strong investor interest and confidence in the IPO. However, it’s important to note that GMP is speculative and can be volatile.

Now, let’s shift our focus to the SME IPO of GSM Foils. SME IPOs cater to small and medium enterprises and are typically more expensive for retail investors compared to regular IPOs. In the case of GSM Foils, investors need to buy a minimum of 4,000 shares, with each share priced at ₹32, resulting in a minimum investment of ₹1,28,000. This higher investment threshold can be a barrier for many retail investors.

GSM Foils operates in the packaging industry, providing a range of foil products. The company has shown steady growth over the years, which is a positive sign. However, like any SME, it comes with its own set of risks, including limited financial resources and market presence compared to larger companies.

When considering whether to invest in an SME IPO like GSM Foils, it’s important to thoroughly analyze the company’s financial health, growth prospects, and market position. While the higher investment threshold can be a deterrent, SME IPOs often offer the potential for significant returns if the company performs well.

One of the key aspects of investing in IPOs is timing. IPOs are often more abundant during a bull run in the stock market. This is because companies see the rising market as an opportunity to raise capital at higher valuations. Conversely, during a bear market, fewer IPOs are launched as companies may struggle to attract investors. Currently, the market is experiencing a bull run, with indices like Nifty reaching all-time highs. This has led to an influx of IPOs as companies aim to capitalize on the positive market sentiment.

Before investing in any IPO, it’s crucial to do thorough research. Look at the company’s financials, growth prospects, industry trends, and management team. Consider the risks involved, especially if the company is not yet profitable. It’s also wise to diversify your investments and not put all your money into a single IPO. By spreading your investments across different companies and sectors, you can mitigate risks and increase the potential for returns.

The grey market is an informal market where shares are traded unofficially, before they are officially listed on the stock exchange. This means shares of companies that are about to go public are bought and sold in this market at a premium or discount. In India, many cities like Jaipur have a thriving grey market where people are willing to pay a premium for shares they believe will perform well post-listing.

For example, if you place a bid today for a share priced at ₹383 in the official market, you need to check the grey market to see if there’s a premium. This is an indicator of how much demand there is for the share. Suppose the grey market premium is ₹100, which is about 26% higher than the official price. This suggests that the market anticipates a strong performance when the IPO lists. The higher the grey market premium, the more likely the share will list at a higher price, generating a profit for early investors. However, one must be cautious as the grey market can be manipulated, although 85% of the time, if the premium is high, the official listing tends to follow suit.

The grey market provides insights, but it’s essential to verify this information through credible sources like Live Mint or other financial news websites. If the grey market premium is positive, it suggests high demand, making it a potentially good investment. However, grey market activity should be just one factor in your decision-making process.

When considering an IPO, it’s also crucial to look at the subscription status. This shows how many times the shares have been subscribed. For instance, if an IPO has been subscribed 9.85 times, it means there’s significant interest, as the demand far exceeds the supply. Looking at the different categories of investors – retail, non-institutional, and qualified institutional buyers – provides a clearer picture. If all three categories show strong subscription rates, it’s a good sign. For example, if retail investors have subscribed 19 times the available shares, non-institutional investors 16 times, and qualified institutional buyers 3 times, it indicates broad-based interest and confidence in the IPO.

It’s advisable to apply for an IPO on the last day of the subscription period. This allows you to see the full subscription data and make a more informed decision. The allocation of shares is done on a random basis, so applying early does not increase your chances of getting the shares. By waiting until the last day, you can see if the IPO is oversubscribed and how much interest there is from different investor categories.

For instance, if you are interested in the IPO of Office Space Solutions, you should first look at the company’s red herring prospectus (RHP). This document provides detailed information about the company’s business, financials, future plans, and risks. Reading the RHP helps you understand the company’s growth potential and the sector it operates in. The RHP is essential reading for anyone serious about investing in an IPO, as it gives a comprehensive analysis of the company’s operations and future prospects.

Similarly, for another IPO, say Mobi, checking its RHP will provide insights into its business of making aluminum pharma foils. Additionally, looking at the grey market premium and subscription status is crucial. For example, if Mobi’s IPO is priced at ₹32 per share and the grey market premium is ₹5, this indicates a 15-16% premium. However, it’s better to look for a grey market premium of at least 20-25% to feel confident about a good listing gain.

When deciding to invest in an IPO, it’s important to consider the overall subscription data. For instance, if Mobi’s IPO has been subscribed 15 times, with strong participation from all investor categories, it indicates a good chance of a successful listing. The subscription data and grey market premium together provide a clearer picture of the IPO’s potential.

Investing in IPOs can be profitable, but it requires careful analysis and consideration of various factors. The grey market premium gives an early indication of demand, but it’s also essential to look at the subscription status and the company’s fundamentals through its RHP. By combining these insights, you can make a more informed decision about whether to invest in an IPO.

In conclusion, while the grey market offers valuable insights into potential IPO performance, it should be used alongside other metrics such as subscription status and detailed company analysis. This comprehensive approach will help you make better investment decisions and increase your chances of achieving good returns on your IPO investments.

Share Market For Beginners Step By Step Guide

Learn How To Invest Money in An IPO With Tips on Listing Gains, GMP, and Subscriptions, Plus Reviews of AwfisSpace & GSM Foils. #ipoinvesting#listinggain#greymarketpremium

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