IPO

  • IPO Basics
  • What is Initial Public Offering (IPO)?

If you are a share market enthusiast you must have heard about IPO investment. The process of new stock issuance to propose the shares of a private entity to the public is called Initial Public Offering (IPO). The issuance of IPO stocks to the public empowers a company to heighten up capital from public investors.

Such an event is profoundly speculated by media, share market geeks and investors in general. For private investors, the transition of a private to a public company is a crucial event that helps them to achieve the profits wholly from their investment as it customarily involves share premiums for them, while it also helps public investors to engage in and enjoy the offering.

  • Key coverages and features

STEP 1

CHOOSING BETWEEN OFFLINE AND ONLINE INVESTING
You can either invest in an IPO stock by filling up a physical form and putting it through a broker or via an online route through your share trading account. The real IPO share request forms are a bit more convenient as the data of your trading account can be automatically downloaded from your DP master data. The online IPO stock investment is quite simpler and even more practical, minimizing the possibilities of errors.

STEP 2

ENSURE THAT YOUR BANK ACCOUNT IS ADEQUATELY FUNDED
When you apply for an IPO investment via ASBA or through the ASBA method, you have to assure you have enough balance in your bank account. In ASBA kind of IPO shares, the amount gets blocked. In both ways, if you don't have enough bank balance, your IPO application gets declined.

STEP 3

THE PRICE TO BID FOR THE IPO
Usually, the companies set a price range for IPO bidding, in case you aren't certain about the bid price, you ought to bid at the cut-off price. If you follow this, it is generally considered that you have made a bid at the discovered price and the IPO allotments would be done in accordance and you will be having IPO shares allotted at the discovered price. To minimize the chances of getting your bid rejected, you need to make a bid at the cut-off price rather than quoting a price.

STEP 4

APPLYING IN RETAIL QUOTA VERSUS HNI QUOTA
You need to mention your quota clearly in the application. The retail quota has 35% of the allocation, while the HNI quota has 15% of the total allocation and involves all the bids above Rs 2 Lakhs. You can select your quota according to your investment. Be assured that your bank details and DP particulars are filled up correctly in the application form.
  • Key coverages and features

STEP 1

CHOOSING BETWEEN OFFLINE AND ONLINE INVESTING
You can either invest in an IPO stock by filling up a physical form and putting it through a broker or via an online route through your share trading account. The real IPO share request forms are a bit more convenient as the data of your trading account can be automatically downloaded from your DP master data. The online IPO stock investment is quite simpler and even more practical, minimizing the possibilities of errors.

STEP 2

ENSURE THAT YOUR BANK ACCOUNT IS ADEQUATELY FUNDED
When you apply for an IPO investment via ASBA or through the ASBA method, you have to assure you have enough balance in your bank account. In ASBA kind of IPO shares, the amount gets blocked. In both ways, if you don't have enough bank balance, your IPO application gets declined.

STEP 3

THE PRICE TO BID FOR THE IPO
Usually, the companies set a price range for IPO bidding, in case you aren't certain about the bid price, you ought to bid at the cut-off price. If you follow this, it is generally considered that you have made a bid at the discovered price and the IPO allotments would be done in accordance and you will be having IPO shares allotted at the discovered price. To minimize the chances of getting your bid rejected, you need to make a bid at the cut-off price rather than quoting a price.

STEP 4

APPLYING IN RETAIL QUOTA VERSUS HNI QUOTA
You need to mention your quota clearly in the application. The retail quota has 35% of the allocation, while the HNI quota has 15% of the total allocation and involves all the bids above Rs 2 Lakhs. You can select your quota according to your investment. Be assured that your bank details and DP particulars are filled up correctly in the application form.

Things to remember while applying for an IPO

“No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor’s account.”

An IPO stock is an investment in general, so you have to consider most of the secondary market analysis here too. Since the public forums have not enough information, you should check out the prospectus of the IPO shares carefully or discuss it with a share market expert. Here are a few factors that you need to check before applying for an IPO investment:

You should check out whether the growth rate is sustainable or not. Higher earnings growth reflects in higher P/E valuations, thus makes earnings critical. Any valuation (P/E ratio) assigned to the company in the present-day must be justifiable in terms of the future earning prospects in the coming 3 to 5 years.

Certainly, one would want to invest in a company that has enough fame but with limited revenue and elusive profits. Unless the revenues and profits are expected in the coming years to foster the valuation, investors may not be too amused about that company.

IPO investment is an easy route for the retail investors, though the capital to be invested is quite higher one needs to analyze whether the company’s earnings have the potential to rise in the coming years. Also, one needs to be careful about bad IPOs.

There might be a few differences among the several benchmarks, but still, industry benchmarks like P/E, EV/EBITDA, P/BV, Dividend Yield, etc help choose the right IPO stock. One needs to analyze the group’s benchmarks carefully, to which the IPO belongs.

You need to study the business model of not just the company but of the whole group to assess the administrative capabilities. An out of the box idea might be amusing but if the group is not skilled and efficient enough to manage and stay up in the market that might be a huge loss to the investors. If the group’s administration has acquired a knack in the market, and their business model is well-sustained, you can go for its company that is available for IPO.

There have been many such IPOs that couldn’t match up to the expectations and disappointed the investors just because the premiums were high. Most of the IPOs tend to be priced a bit high to cash the opportunity in good market conditions. But, you must not be putting all your money just because the company is doing good, be careful and assess whether the premium is justified or not.

Doing channel checks might be intimidating for novice investors, but these aren’t that difficult. Most of the companies come up with tall claims and promises; you need to cross-check their data within the associations and regulatory boards. You might also visit a physical market to assess their claims.