Selling IPO Shares: Step-by-Step Guide for Investors

Do you often come across the term ‘IPO’ in conversation? There has been growing interest in Initial Public Offerings or IPOs among investors. Many view an IPO as an opportunity to buy a company’s shares at an attractive valuation and potentially earn gains if the company’s market value increases.

IPOs attract both long-term investors who believe in the debuting company’s future prospects as well as short-term traders seeking the potential for immediate gains on the day the company is listed on the stock exchange.

This article looks at the latter approach and explores the process of selling IPO shares. It also explains the basics of IPOs to help you make informed decisions.

• Table of contents

• Understanding an IPO
• Selling IPO shares: Different approaches
• Process of selling IPO shares
• How to sell IPO shares on listing day?
• Tips for timing your IPO sale
• Common mistakes to avoid when selling IPO shares

Understanding an IPO

IPO, short for Initial Public Offering, is the process by which a private company offers its shares to the public for the first time. This means the company that was privately held until then can now trade publicly on a stock exchange. Companies can issue an IPO for several reasons, such as to raise capital, reduce debt, increase liquidity, or boost public visibility.

Before an IPO, a company’s shares may be held by a few investors, including founders, early employees, and venture capitalists. Once the IPO opens for subscription, investors can apply for shares by placing bids for a certain number of lots. After the application window closes, shares are allotted based on demand and investor category. If you receive an allotment, the shares are credited to your demat account before the listing day.

After the IPO, the company’s shares are listed on a stock exchange, where they can be bought and sold by the general public.

Selling IPO shares: Different approaches

The main purpose of selling IPO shares is to earn potential profits. However, the approach and timeframe can differ. Here are some common ones:

Listing day sell

The shares allotted to you during the IPO become tradable once they are listed on the stock exchange (NSE/BSE). If you are seeking listing gains (potential profits on the first day that the company is listed on the exchange after the IPO) log in to your trading account on the listing day and check the live market price of the stock.

If the listing price is higher than your allotment price, you may choose to sell immediately to potentially book quick profits.

Selling for principal

This approach involves selling enough shares to recover your invested capital and let the remaining amount potentially grow over time. You may sell these shares on listing day or later, whenever the market value of the stock potentially rises to the desired level. This approach can reduce investment risk.

Booking gains

Here, you sell your shares after a few weeks or months if you potentially make the desired profit. You can set a target price, and if you reach it, you can sell the stocks and lock in the potential gains.

Also Read: What is Secondary Market?

Process of selling IPO shares

Here is the step-by-step guide to selling your IPO shares:

Analysis

Analyse the company’s fundamentals, market sentiment, and listing trends. Decide whether you are looking for the potential for immediate returns or long-term participation.

Listing day

On the day of listing, log in to your trading account. Monitor price movements and place a sell order based on your strategy. You can sell the entire lot or a part of it—the decision rests with you.

IPO discount

If the share lists below the issue price (IPO discount), reassess. You can wait to see if the stock potential recovers with time or exit promptly to limit further loss, depending on your outlook and analysis.

How to sell IPO shares on listing day?

If you’re seeking potential listing gains from an IPO, here are the steps involved:

Select the stock

Log in to your trading account on the listing day and select the stock you want to sell. Trading starts when the market opens in the morning.

Market orders vs limit orders

Choose whether you want to sell using a market order or a limit order. A market order is executed at the best available price, while a limit order is executed at your specified price, but execution is not guaranteed.

Execute trade

Place the order if the price aligns with your strategy.

Tips for timing your IPO sale

Analyse GMP

Grey Market Premium, or GMP, is an unofficial indicator of potential listing expectations. The grey market is an informal market where IPOs are sometimes traded before official listing. GMP reflects the additional amount investors are willing to pay and may indicate market sentiment. A high GMP may suggest strong demand—but it is not a guarantee.

Monitor market trends

Track sector performance, market sentiment, and news that could impact the stock post-listing.

Set target prices

It may be advisable to decide your desired profit level in advance. Sell if the stock hits your target—whether on listing day or later.

Common mistakes to avoid when selling IPO shares

Panic selling

Selling your shares just because their market value has dropped may not be a suitable approach and can lead you to book losses.

Ignoring company fundamentals

A stock may list at a discount but still offer long-term potential if the company has strong fundamentals.

No strategy

Not having a strategy can lead to hasty or misaligned decisions. Before the shares are listed, it helps to know whether you're seeking the potential for listing gains or holding the stock for the long term. Without this clarity, you might exit too early or hold on without a clear reason, increasing the risk of regret later.

Getting influenced by hype

Avoid relying solely on social media buzz or hearsay. Conduct your own research before making decisions.

Also Read: How to Invest in IPO

Conclusion

Understanding the IPO selling process is important before you buy or sell IPO shares. Follow a step-by-step approach, stay objective, and make informed decisions based on your financial goals.

If you prefer a less hands-on approach or are new to the markets, you may consider mutual funds. These don’t require a trading account and can be accessed through platforms or distributors who handle the transactions on your behalf.

FAQs

How to optimise potential gains from selling IPOs?

• Monitor market sentiment
• Sell on listing day if the price surges
• Hold quality stocks for medium- to long-term potential
• Use limit orders to manage risk

How do I know a suitable time to sell my IPO shares?

• Watch market and sector trends
• Track relevant company news
• Use basic technical analysis
• Sell if the stock hits your target price

What are the risks involved in selling IPO shares?

• Price volatility on listing day
• Stock may list at a discount
• Uncertain market conditions
• Emotion-driven trading

Can I sell IPO shares before the lock-up period ends?

Retail investors typically do not have a lock-in period after an IPO. However, promoters or anchor investors may have lock-in obligations.

How to sell pre-IPO shares?

Pre-IPO shares are usually sold through private transactions and may be subject to transfer restrictions.