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Simply Save | What should retail investors keep in mind when investing in IPOs?

Moneycontrol’s Jash Kriplani talks with G Chokkalingam, founder and managing director of Equinomics Research and Advisory

November 03, 2021 / 06:03 PM IST

Indian investors are seeing a large number of IPOs coming their way. Both new-age businesses and traditional businesses are looking to get listed on the stock exchanges, hoping to get good valuations for their companies on the back of the current stock market rally.

Retail investors have also been heavily participating in the IPOs, especially of technology and e-commerce businesses as these companies are what investors have experienced as consumers. 

The recent IPO of the beauty and personal care platform -- Nykaa -- got subscribed 81.78-times the shares available in the IPO, with the retail shares getting subscribed 12.24-times.

Also read: Why mutual funds found investing in Nykaa's IPO fashionable despite stiff valuations

But, whether traditional or new-age business, a company launching its IPO does not have any track record of its behaviour towards minority shareholders. It is only after getting listed on stock exchanges, these companies open up their shareholding to public at large. 

Quite a few of the technology-driven e-commerce companies are still making losses, with some exceptions like Nykaa. While investors may not have all the historical data of a company, they can go through the company’s draft red herring prospectus (DRHP), where companies are required to disclose information like recent profit and loss statements, current shareholders, promoters, as well as any instance of past litigations.  

After the company gets listed, it needs to follow SEBI’s Listing Obligations and Disclosure Requirements (LODR), which require companies to disclose every corporate action regularly, be fair to minority shareholders, and also maintain good corporate governance practices.

In today’s Simply Save Podcast, Moneycontrol’s Jash Kriplani talks with G Chokkalingam, founder and managing director of Equinomics Research and Advisory, on how much of their savings retail investors should allocate to IPOs, how they should read the company’s DRHPs and use other sources of information to decide whether to buy or avoid an IPO.
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Jash Kriplani is a journalist with over ten years of experience. Based in Mumbai. Covering mutual funds, personal finance. His last stint was with Business Standard, where he covered mutual funds and other developments in the financial markets