New Delhi: A lot of investors are trying to target the big bang initial public offerings hitting the market. After around five companies that launched their offerings in the previous month, almost 12 IPOs are expected to hit the market in July. If you want to buy the stocks in the upcoming IPOs, then here is what you should.
What is IPO?
It is a process wherein a private company raises money from the general public. After the completion of IPO process, the company turns into a public limited company, whose shares can be traded on the exchange. If you aim to invest in an IPO, investor gets an early access to a company’s growth story.
How to invest in IPO?
In order to invest in IPO, investors will require a dematerialized (demat) account with a registered broker. With the help of demat account you can apply for an IPO once it is launched. Most IPO windows remain open for almost three days for trading. A listed company could offer its shares through the IPO at a fixed price or at a price range commonly known as the “price band".
It is important to note that applying for an IPO doesn’t mean you will end up owning shares of the listed company. Investor can receive full, partial or no allotment since the allocation of shares depends on the demand by retail and institutional investors and most importantly the available number of shares for sale during the IPO.
What to keep in mind before applying for an IPO?
One should always keep an eye on publicity created around the IPO launch. Besides, you should also check the business strengths and capabilities of the company which can be accumulated by reading the draft red herring prospectus (DRHP). You can also carefully study the research reports available on the company.
You need to check certain other parameters such as the financials which means evaluating the company’s revenue streams and its ability to bear short-term setbacks.
Also, don’t forget to check on previous fundings and primary investors. Also, try to find out how the management intends to utilize the capital being raised through the issue and how it is expected to grow in the future.
Also, check the past performance of the company and try to understanding its business model.
A booming stock market comes as an excellent opportunity to invest in IPOs. However, only if you understand the avenue well and can deak with the associated risks