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Here are the factors to consider before investing in an IPO

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Here are the factors to consider before investing in an IPO

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Here are some factors to consider before investing in an IPO, as compiled by Gopal Kavalireddi, head of research, FYERS.

Here are the factors to consider before investing in an IPO
An initial public offering (IPO) is the process of offering shares of a private company to the public in a new stock issuance. This allows the company to raise capital from public investors who invest in IPOs in exchange for shares in the company.
An investor can apply for an IPO through his/her bank account or trading account. Investing in IPOs isn't as simple as it seems, as subscribers to the IPO don’t have in-depth access regarding business model, management quality and vision, growth prospects, product portfolio, or financial trends of the past.
Here are some factors to consider before investing in an IPO, as compiled by Gopal Kavalireddi, head of research, FYERS:
  • Check for quality of management, book running lead managers (BRLMs), and the purpose of IPO.
  • Read through the entire prospectus, reviews, and ratings offered by brokerages and independent analysts
  • Understand the business and its prospects, financials, valuations, and competitive landscape.
  • Compare with peers/industry average for clarity on the positioning of the company from the point of product portfolio relevance, pricing capability, and margins.
  • Check the subscription status during the open-period of an IPO. A very high subscription will result in non-allotment and a subscription below 1X reflects the poor interest of investors.
  • Finally, look at the positioning of the stock market. Is the market in a downtrend, raising the possibility of the IPO being affected negatively or not?
  • Additionally, one should not be carried away with the hype while investing in the IPO.
    "When it comes to IPOs, it's important for investors to avoid the temptation of getting excited with the hype surrounding each IPO and understand the quality of the listing company. Quite often IPOs can be overrated. One method that must be employed is telling oneself that if this is a good investment, it will continue to be a good investment even after the IPO when it gets listed on the exchange," opines Arshad Fahoum, chief product officer, Market Pulse.
    Also, investors should do their research and due diligence before investing.
    Some of the questions one can ask is, as Fahoum says are:
    Is it a market leader? Do the long term prospects look promising?
    Is it a well-known brand? Do they hold any important patents/trademarks?
    How stable is the company?
    Why is the company getting listed?
    What is it going to do with the cash it's raising?
    And most importantly, is it available at a reasonable valuation?
    Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
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