Want to invest in new-age tech issues like Zomato IPO? Consider these parameters first

Zomato has lined up its initial public offering (IPO) for July 14 to July 16, in hopes of generating a capital amounting to Rs 9,375 crore. It is supposedly the first in a series of consumer internet companies and startups that are raising public money in the country after the pandemic.

If you are looking to invest in Zomato or similar consumer internet companies or startups, there are several things that you need to consider. While it is important to consider the business model and growth prospects of the company, they are not enough by themselves. An investor must also look at the pricing of the issue. If the company that is launching the IPO is demanding a higher valuation, you may want to wait as an investor before making an entry.

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If you want to get an idea about the quality and pricing of the issue, you should look at the subscription by qualified institutional buyers. If the subscription level is low, it suggests that the institutional investors do not see a good reason to invest in that particular company. On the other hand, if the subscription level is too high. It could mean huge retail subscriptions and very little allotment, thereby making the whole thing pointless.

Even though a retail investor can apply for shares worth Rs 2 lakh in an IPO, if the retail subscription level is 50 times, it would essentially mean that the investor would only get shares worth Rs 4,000 — which, experts feel, is not worth blocking Rs 2 lakh for 10 days.

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Rachit Chawla

CEO & Founder|Finway FSC

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Catch All Live Updates Related to Zomato IPO Subscription Here

Investors should refrain from chasing the stock after a strong listing, which often is the result of oversubscription. In case several investors end up selling their allotted shares within a week of listing, the share price could fall lower than the issue price. Therefore, it is highly recommended that investors should wait for a few days before deciding to invest to understand what the company is all about and how it is affecting investor interest.

Also read - Zomato IPO | Anita Gandhi of Arihant on why the offer is a long-term 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.