Here are key determinants that govern IPO subscriptions

Rachit Chawla, CEO & Founder, Finway FSC

The process of issuing shares of a private firm to the public in a new stock issuance is known as an Initial Public Offering (IPO). Funds can be raised by a firm from the general public by issuing public shares.

What are the key parameters one should consider before investing in an IPO?

Scrutinize the company history: Read as much as possible about the company's business and operations before investing in an IPO. Examine the company's financial performance during the last few years. It is critical for a business to be financially sound and consistently deliver growth.

Future Prospects of the Company: Understand why the company is launching an initial public offering. Figure out the long-term goals of the leadership and learn about the company's vision. Read about the resource utilization plans of the company and how the money raised through a public offering will be deployed in the future. That includes finding out whether the company will use it for expansion, debt repayment, or other purposes.

Related stories

Rachit Chawla

CEO & Founder|Finway FSC

• 
  Want to invest in new-age tech issues like Zomato IPO? Consider these parameters first
• 
  Suspension of trading: All your questions answered
• 
  5 mantras to become successful in stock market

To Know All IPO Related News, Click Here

Perform a peer-group analysis: One of the most crucial elements to consider when investing in an IPO is valuation. The best way to determine a company's valuation is to compare its price to that of its listed competitors. If the company's business is new and it has no counterparts in the public industry, the price to earnings ratio and return on equity can be used to quickly assess its worth. Divide the current stock's share price by its earnings per share to get the price to earnings ratio. As a result, the allotment is proportionate, and you may receive less shares than you applied for.

Be wary of over-subscription: Since a company limits the number of shares in an IPO, their allocation to each category is predetermined. It is very likely that the number of offers made exceeds the number of shares by a significant margin. However, the distribution of equity shares is done between categories in a proportionate manner which means you may even be allotted fewer shares than you initially applied for.

Always read the red herring prospectus before investing: The fine print comprises detailed information about the company, such as the company's business, financial statement summary, capital structure, issue objects, management viewpoints, and so on. The prospectus provides general information about the IPO, making it simple to determine whether the firm is worth investing in. Nonetheless, personal discretion is advised as the prospectus may not always be indicative of the true market sentiments.

Following are some other things you should consider while investing in IPO:

1. The credibility of the senior management and their track record in leadership positions
2. Delve into the technical analysis as well to understand how the business reacts to market shocks and other news
3. Gain a comprehensive understanding about the company, including its mission and vision. They play a role in guiding the organisation towards its strategized goals.
4. Understand the company’s product offering, market strategy, consumer response and the business ethics.

The most important thing to bear in mind is that your instinct counts. Never discount your intuitions as they are backed by your own reading and understanding of the business. Markets are never guaranteed to follow public opinion; at times there may be inconspicuous factors at play.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.