Companies raise capital from the market to expand their business and fulfill other responsibilities. For this, apart from other instruments, they also do this through Initial Public Offering i.e. IPO. In such a situation, there are good opportunities for investors to earn. If you are also thinking of trying your hand in IPO, then you should do homework on certain things before buying an IPO. There are many things that should be taken care of beforehand.
Keep these things in mind before taking an IPO
Understand the business of the company bringing the IPO. It would be better to give preference to companies from industries that you understand and where you are comfortable. According to SBI Securities, look at past data as well as prospects, because industry leadership and disruption are important factors in IPO returns.
Take a look at how the financial position of the company is. Pay attention to companies that make profits. Look at the trend, and it should be a rising trend. Keep an eye on healthy net margins, return on equity (ROE) and return on capital employed (ROCE) in IPOs.
Assess the valuation of the company. From an investor’s point of view, a good IPO is one that offers some relief to shareholders. If the IPO is priced too high compared to the peer group, your chances of making profits are limited.
Market sentiments matter a lot. It can be a two-way street. In tough market conditions, you may not get great returns from listing but chances of allotment are very high. In bullish times, it is the opposite. Also, it depends on what you are looking at.
Check out how many shares are locked in in an IPO and when does the lock-in open. According to SBI Securities, there is a lock-in period in pre-IPO allotment and anchor allotment. Anchor allotment has a lock-in of 1 month and 3 months respectively. This leads to a surge in supply and impacts prices.
Consider the image of underwriters and lead managers Generally, quality lead managers ensure due diligence before the IPO goes public and also ensure that there is scope in pricing.
Make sure your demat account is already open and active, so that you can get shares when you get allotment in the IPO. Also, keep the trading account active if you want to sell IPO shares after listing.
Upcoming IPOs
There is a tremendous flow of IPOs in the market. IPOs of companies are coming continuously. In the coming days, IPOs of Fab India, Oyo, Boat, Bajaj Energy, Mobikwik, Stud Accessories, Arohan Financial, Snapdeal, Droom, Swiggy and Hyundai Motor India will be seen. However, the dates for these IPOs have not been announced.
