With the Initial Public Offering (IPO) market the strongest it’s been since 2007 the IPO frenzy is expected to continue as lot of companies are in a hurry filing DRHP. But before jumping on the bandwagon, here are some key considerations to help retail investors determine if these investments are the right fit for them. Although IPOs have the potential to deliver returns, they also carry serious risks for even for the savviest of investors.
Here are some things to consider when you are thinking about investing in a new public company.
1.Will i get Allotment of shares ?
It can be difficult for individual investors to get allotment in an IPO because of the number of times it is getting subscribed, the competition is getting tougher with each passing IPO.
2.Do Your own Research?
Investors should do a lot of research before deciding to invest in an IPO. Start by researching the company and develop an understanding of its business model, fundamentals and management team. Read the prospectus, check out the growth and earnings potential of the company, and develop a case as to why it might succeed over the competition.
Does the company have strong earnings potential, or are they struggling to turn a quarterly profit?Could buying these shares increase your risk profile? What are the implications of a market downturn on the value of these stock holdings?
3.Before Thinking of Investing, you should answer these questions:
- How the company makes money?
- What are its key products or services?
- Potential risks and rewards associated with investing in the company?
- Future Growth Prospectus?
4.Understand the Company’s Business Model and the Associated Risks?
Once you have completed your research, you may feel comfortable with your understanding of the company’s fundamentals, but it’s important to remember that investing in these stocks can be risky for even the most well-informed investor.
Investing in an IPO is like investing in secondary market – there is no guaranty that you will make profits. And there are several reasons why they may under perform, leaving an investor holding shares that trade below the issue price.
5.Don’t go by the Media Hype.
There are many cases where the media had created such a hype around an IPO (example. Reliance Power IPO) that the people who were sleeping in their houses without having any Demat account suddenly woke up and opened Demat accounts thinking that they would make huge listing gains.
6.The Biggest Advantage.
If you think the company is going to perform well over the long-term, it may be a good decision to invest in an IPO and enjoy the journey Since some of today’s most valuable companies have seen their stock value increase ten fold or more since they came up with IPO.The best example is Yes Bank.
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