In October, about 10 companies are going to bring their IPO. But investing in IPO is not a profitable deal every time, but sometimes this investment can also give losses, in such a situation it is very important to keep these 5 things in mind before investing in IPO.
IPO has dominated the primary market of India for the last two years. In the year 2021, about 40 companies have brought their IPO to the market. At the same time, about 30-35 companies are going to come with IPO in the remaining 3 months, out of which many IPOs are going to come this month.
Generally, most of the investors invest money in IPO and leave by earning big on the day of listing. For many people, the IPO market has become an easy way to earn double profits quickly. This is the reason that in the last two years, till now more than 80 million people across the country have been associated with an investment in the stock market.
Due to the good listing of many IPOs, everyone is getting attracted to the IPO market. But investing in IPO is not a profitable deal every time, but the investment made in it can also give losses, in such a situation it is very important to have some important things in mind before investing in IPO…
1. Information about the company’s management and promoters
Before investing money in an IPO, definitely read about the management of the company. It is very important for investors to know who is running the company of the upcoming IPO and who is in the management. The share of the promoters of the company clearly shows how the business and revenue of the company have been in the last few years. Promoters and management play an important role in the growth of any company. Higher stake of promoters is always beneficial for small investors. That is why it is very important to know in whose hands the company is.
2. Learn About the Red Herring Prospectus
When any company is going for an IPO or wants to raise funds by selling shares, then the company files a draft red herring prospectus (DHRP) with the market regulator SEBI. The DHRP given to SEBI shows where the company will use the money raised through the IPO. Also, what are the risks involved in investing in the company. All these things are known through DHRP, what is the position of the company in the industry and how strong is the company. Before investing money in an IPO, one must know the complete information given in DHRP.
3. Where will the money raised through IPO be used?
Before any company raises money through IPO, it definitely tells where it will use it. For example, to repay a loan, for a new business expansion plan, or for any other corporate work. Knowing how the company will use the money raised makes it easier for investors to invest in an IPO. It must be known why the company is raising money and whether the company is withdrawing private equity funds partially or fully.
Rajesh Aggarwal, Head of Research, AUM Capital believes, ‘Before investing in any IPO, it is important to see which sectors the company is involved in, what is the promoters pedigree. Also, it is important to keep in mind the business prospects of the company. Along with this, it is imperative to see whether the company is profitable or not. In the last few IPOs, we saw that IPOs were oversubscribed and listings were excellent, despite being in losses. But investors who want to invest for medium to long term need to be careful in such situation.”
4. Focus on Company Fundamentals
Before investing in any IPO, understand the business model of that company. What is the business of the company? Also, how is the situation of the sector related to the company going in the market, how has the business of the company been in the last 5 years, whether the company has a lot of debt, how has the company’s profits, earnings grown, how is its valuation Well, keeping all these things in mind, you should invest in IPO.
Rakesh Bansal of LearnRKB.in says, ‘Before investing in IPO, it is important to keep in mind what is the purpose of the company’s IPO, at what valuation it is coming. Also, never invest in an IPO looking at the grey-market premium.
5. Expert Opinions and Anchor Investor Information
Many research companies prepare their research reports or give information on that company before the IPO comes. So that it can be easy for investors to invest money in IPO and they can choose the right IPO. Anchor investors sometimes invest in IPOs through mutual funds, private equity, banks, and institutions. Anchor investors have complete information about the companies associated with the IPO. The entry of quality anchor investors into IPOs further increases the confidence of small and medium investors. Always invest in IPOs by keeping in mind good quality anchors or investors’ opinions.
6. Keep an eye on market sentiments
Apart from this, what is the sentiment of the market should also be taken care of. Many times, due to poor market sentiment, the company gets listed at a level below the fixed price band. In such a situation, those who are short-term investors have a loss deal. Last year, the country’s second-largest credit card company SBI Card had listed an IPO. But due to Kovid, there was a negative environment in the market and the investors could not get the listing benefit, although the long-term investors stayed because SBI Card is a strong company and they also got the benefit. That’s why many times the listing is bad listing due to bad market sentiments even though the company is strong. It doesn’t mean that the company is bad. The market is based on sentiments so it becomes important to keep that in mind.
Also, make sure to know whether it is necessary for your portfolio to invest in that IPO or not. Many times we invest in IPO after seeing others. Don’t do this at all. Please consult your investment advisor before making any kind of investment. Do not be in any hurry in the race to earn money, otherwise, you may have to deal with losses.
7. Many investment opportunities will be available in October
At present, there is a bullish environment in the stock market and due to the abundance of liquidity, the IPO is likely to get a great response. Companies like Nykaa, Northern Arc Capital, Star Health and Allied Insurance, Fincare Small Finance Bank, Utkarsh Small Finance Bank, Emcure Pharmaceuticals, and MobiKwik are all set to launch IPO this month.