Know how to invest in an initial share sale
An initial public offering (IPO) is a process wherein a private company invites investments from the general public. After an IPO, a company turns into a public limited company, whose shares can be traded on the exchange. Investing in an IPO can give you early access to a company’s growth story.
How to invest: Investors who hold a dematerialized (demat) account with a registered broker can apply for an IPO once it is launched. Most IPO windows open for about three trading days. 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”.
Arshad Fahoum, chief product officer, Market Pulse Technologies, said, “Applying for an IPO doesn’t necessarily result in owning shares of the listed company. Applicants could receive full, partial or no allotment, depending on the demand by retail and institutional investors and the number of shares available for sale during the IPO.”
However, while applying for an IPO, you must keep the following things in mind.
First, you should learn to see through the hype and publicity surrounding IPOs and focus on the business strengths and capabilities of the company. “This can be done by going through the DRHP (draft red herring prospectus),” said Fahoum. “Or you can get any available research reports on the company.”
Second, assess the company on certain parameters. “Although analysing a new listing’s financials could be difficult, it would be helpful to evaluate the company’s revenue streams and its ability to bear short-term setbacks,” said Fahoum.
Third, know the primary investors, their background and how the management intends to utilize the capital being raised through the IPO.
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