Yes, as an investor you are well within your rights to sell your IPO shares immediately. Neither the NSE/BSE or any other agencies can stop you from exercising these rights. When we talk about selling the shares immediately, there are certain strategies and factors involved in it. This blog will talk about the different exit strategies as well as the factors one need to consider before selling their shares.
Strategies for selling the shares immediately:
Selling all the Shares on the listing day:
Many analysts and researchers believe that an IPO investments performs better on the day it is listed than on other trading days. This reference is also affected by the timing of the stock’s listing (end of the Bull Run). When compared to one, two, or even three year returns, listing day returns are usually the clear winner. As a result, selling your stock on the day it is listed may be a good strategy. Pre-market prices provide a very good estimate of where the stock is headed, and solid pre-market returns are a good time to sell. This is the simplest strategy and can help you avoid future losses. When a company is listed, it becomes subject to public scrutiny and market sentiment.
Selling part of the shares on the listing day:
This strategy allows you to cover your costs while remaining invest in stock rises in the future. Assume you’ve been assigned 100 shares at Rs 100 each. The total amount you have invested is Rs 10,000. If the stock returns 30% on the first day of trading, the opening price would be Rs 130. In this case, you can sell 77 of the 100 shares to recoup your investment. From this point forward, the remaining 23 shares could be held for a longer period of time if the stock is fundamentally sound. These strategies could also be used after the “Lock up” period has ended.
Selling shares in installments:
Another strategy you can use is to sell a small quantity at a time. After the quarterly earnings reports are released, you should have a normal selling window. This gives you four sales opportunities per year. For example, if you have been assigned 100 shares for an IPO, divide the number by four. For the next one year, sell 25 shares every quarter. The inverse of dollar cost averaging. Instead of purchasing equal numbers of shares, you sell equal numbers of shares. As a result, your average selling price becomes the average stock price for the next year.
Selling half of the shares on listing day and the other half on quarterly basis:
This is also an instalment selling strategy, but instead of equal instalments, you sell half of your costs upfront, covering the majority of your costs. This strategy can be very effective if the stock tradingat a healthy 40 percent – 50 percent gain. Again, selling at quarterly earnings reports is a good time to do so.
Factors to consider when selling your stocks immediately
Implications for taxation:
You must pay ordinary income tax on the gains if you sell the stock on the first day of its listing or at any time during the first year. If you want to take advantage of the lower capital gains tax rates, you must sell the stock after the first year.
Check to see if there are any restrictions on selling the stock. Members of the company or those associated with it are usually subjected to a “lock up” period. This lock up period could be three months, six months, or even longer, depending on the company.
How to sell the IPO shares on the listing day
On the day of the IPO’s listing, the BSE and NSE allow a special pre-open trading session for IPO shares (only first day of their trading). Orders can be entered, modified, and cancelled during the 45-minute pre-open session (9:00AM to 9:45AM). The following are the steps for selling IPO shares in the pre-open market on the day of listing:
Call your broker or go online and place a sell order with the price you want to sell at.
If the listing price is equal to or greater than the price at which you order to sell in pre-open, your shares are sold at the listing price.
Your order will be cancelled if the listing price is lower than your sell order price in the pre-open market.
Since the future is unpredictable, there should always be an exit strategy. The strategies listed above are a good place to start and can be modified based on your specific needs. The important thing is to have a strategy in place as well as a diverse portfolio. We at Tradeplus can help you sell/buy shares from IPOs without much hassle and you can approach us for all needs.