Not sure which IPO to choose from?
Not sure which IPO to choose from?
Here are some top pointers to look out for while subscribing to an upcoming IPO.
An IPO, also known as Initial Public Offer, is the first time that a private company sells it’s shares to the public investors. This gained great traction in the 90’s.IPO’s have been famous for generating immediate returns on listing and hence most people get attracted into investing into them.
With a host of new IPO’s coming up such as Nykaa, Paytm, Adani Wilmar and Mobikwik, it is always advisable to only invest in those IPO’s which look fundamentally strong and promise a good return on investment without being a risky proposition. After a strong performance by most IPO’s between 2020-2021, analysts are bullish on IPO’s and are positive that the buoyancy will still continue.
With this blog, we at Equiseed wealth help you to understand the key points to look at before considering to apply to an IPO. These takeaways will always aid you to apply to an IPO in the future always too.
Here are the most important things to consider while applying to the IPO that you have shortlisted:
Go through the company financials
The first and foremost step is to look into the balance sheets of the IPO that you are about to apply for. This is the most vital step which will help you in determining if the company’s performance has been improving over the years and if it makes the investment proposition worthwhile or not.
You can get hold of such valuable information by visiting the company's website. It would be of added value if you are able to decide the key competitors of the company and are able to compare all of their balance sheets simultaneously. A brief comparison of profit after tax, interest payments, for instance will give great clarity.
Choose a company with good brokers
While choosing a company make sure that you keep an eye on the brokerages that are promoting the issue. Quality brokerages will only be willing to underwrite companies with a good track record. Smaller brokerage may be willing to underwrite any company out there as compared to a quality brokerage tying up only with a quality company.
Focus on the prospectus
Never, we repeat never forget focusing on the prospectus of the issue. This is in short the reason why the company wants to list its shares on the stock exchange and make them available for the public and companies to invest in.
The reason may vary although most companies usually raise money to repay their outstanding loans and/or use the capital to invest in their management/ future operations,
Think about the lock in period beforehand
Most investors get into investing in an IPO to take maximum benefit of the short term gains on listing. However, some companies listing their IPO’s have terms and conditions, one being a lock in period. A typical lock in period lasts from 3- 24 months.
During this lock in period, the investor has to stay invested in the stock without the option of exiting. A good company with good financials will always be a good prospect to invest in, even after the lock in period gets over.
Due to lack of investor awareness while applying, several investors have faced losses and hence the Bombay stock exchange has issued several notices alerting investors to exercise caution and not to venture into any IPO without proper background work.
Hence we can conclude that research and caution is very important before applying for your next IPO issue. IPO’s may or may not always give bumper profits and some listings do not meet market expectations and end up listing at a discount rate. This could end up being dangerous for your capital invested.
The above pointers mentioned above will always enable you to factor in and make appropriate decisions.