INITIAL PUBLIC OFFERINGS (IPO) – A SIMPLE GUIDE TO CHOOSE THE RIGHT IPO INVESTMENT
IPO – Initial Public Offerings as the name suggests, is the process by which a private organization issues new stocks to the public to raise capital for various reasons. It is the transition of a private company into a public company as it allows the public investors to participate in the company through its shareholding. For traders or investors, IPO is a great investment tool to make money in a short period. But, not all IPOs perform the same way. Investing in IPOs requires knowledge of the market and most importantly, an understanding of the company that you are planning to invest in.
Following are a few essentials to keep in mind before investing in any IPO:
Thoroughly research the company’s background, management, clients, and past performance; in short, the strengths of the company. You can easily find all the necessary information about the company on their website and their red herring prospectus (available on https://www.bseindia.com/markets/PublicIssues/IPODRHP.aspx), which is a more reliable source. Research all these parameters thoroughly and then decide whether to invest or not.
A good track record does not guarantee fruitful future returns. The future performance of the company depends on the industry it’s operating in. You should evaluate and analyze the overall potential growth of the industry and depending on this analysis, evaluate the growth prospects of the company in the years ahead.
While issuing an IPO, the promoters of the company generally dilute their stakes. However, according to the law, they can hold at least 20% even after an IPO. If the promoters are diluting their stakes significantly, then you should refrain from investing because that could mean that the future of the company is not very bright.
Reason for IPO Issue:
Reasons for raising capital vary from company to company, depending upon their needs and the same is reflected in their red herring prospectus. A company that is raising capital for growth-related reasons is investing in new technology or acquiring a new business, are the ones to look out for. On the other hand, the ones raising capital for paying off debts should be avoided.
Though the company’s brand name is one essential factor to consider, it is not all that matters. A company can price a higher valuation for their shares and have oversubscribed IPOs. You can assess the fair price through competition analysis. Price-to-sales and Price-to-Earnings (figures given in its income statement) are two commonly used ratios for this purpose. If the ratios are higher than that of the competitors then generally you should avoid such an IPO. However if a thorough study is done, then there can be chances that the company is better than its competitors and in that case, you should invest.
How can you invest in an IPO through Stoxkart using any supported UPI app?
- Login to your Stoxkart account and select Apply IPO in the menu section.
- Select the IPO you want to apply for from the list of open issues.
- Apply through the UPI ID linked to your Stoxkart Demat-cum-Trading account.
- Choose the bid while applying for shares as per the lot size offered by the company.
- Click to proceed and accept the mandate request on your BHIM UPI App
- You can modify your bid and for that, you need to accept a new mandate on your BHIM App.
- At the end of the day after submitting the IPO bid, you will receive an SMS from the exchange confirming your application.
- You can verify the bid details on the exchange’s website one day after the placement of your application bid.
- A CAN (Confirmatory Allotment Note) within 6 working days post-closure and then the shares will be credited to your Demat account.
- The blocked amount will be deducted from your account on the successful allotment of shares.
- The unsuccessful bidder amount will get unblocked after the allotment process is completed.
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