1.How to select an IPO?
The first thing you have to do is a detailed research about the company and to read every detail in the prospectus,also browse through the articles from the leading business publications and check the views of Brokerage Houses.By doing this you will get a fair bit of idea about the company.
But the big question is can you 100% rely on the opinions of brokerage houses and publications because they may have their own vested interests to portray the company they support in a good light.So, the rule is, if the QIB category is over subscribed, then you can trust that IPO, because the Institutions have better access to the Company data than the retail individual investor. And you can be sure that the institutions will not put in their money where it won’t grow.
2.You should know how the Funds will be utilised.
Read the prospectus in which they will state on how they will make use of such a huge capital they raise by going public. The plan of action which may include coming up with new products, spreading their operations to a different sector, for improving their infrastructure, or just clearing off the debts, any of these or a combination should have a potential to generate good revenue. If the prospects look promising, the chance of buying looks bright.
3.Apply at cut-off price
If you are a retail investor and you are keen on increasing the chance of getting shares allotted then bid at the cut-off price. This way your application will be considered, whatever maybe the final allotment price.
4.Evaluate the Company’s prospects in detail.
You should analyze the timing of the company’s entrance into the market, and the success of the competitors in the same sector and their drive to make the most out of the market share should be evaluated before you invest in an IPO. The company’s background history as a private business, their growth path and the fundamentals they believe in.. should also be considered when you start considering to put money in an IPO.
5.Evaluate the valuation of the Company.
Valuation is toughest part for the retail investors. This process is very important. The investment bankers evaluate the quality of management and the returns before arriving at the final offer price. Compare the valuation with the listed peer group companies.
Also Read: Questions to Ask Before You Buy a Stock?
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