IPO Subscription: For traders buying and selling shares, there is a great opportunity to earn profits through IPO subscription. Although the profit earned through IPO listing is only, it is not necessary. In such a situation, it becomes necessary that before subscribing to the IPO of any company, the draft Red Herring Prospectus (DRHP) and RHP filed by the company should be studied. DRHP and RHP are the encyclopedia of company and industry filed by companies with capital market SEBI. With this, what is going to be the growth of the company in the future, it can be estimated. There are a few things you must keep in mind while subscribing to any IPO so that you can earn profit from the capital invested.
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Keep these things in mind before subscribing to IPO
- Before subscribing to any IPO, as an investor, you should decide in advance whether you want to take advantage of listing gains on it or are investing in it for a long time. Sometimes in the case of some stocks, it happens that the listing gain is very high but it is not necessary that it should remain bullish even further.
- While filing for the IPO, the company also gives information in the prospectus about how the funds raised from the IPO will be used. Keep in mind whether the company is raising funds to repay its debt or to expand its capacity. Generally, if the company is raising funds to increase its capacity, then its growth potential is high.
- If the company whose IPO is opening, there is a stake in giants like Big Bull Rakesh Jhunjhunwala and Radhakishan Damani, then investors are attracted towards it. The investment decision should not be taken only after being influenced by their stake, but necessary information should be gathered about all the promoters of the company.
- One must keep in mind how much the valuation of the company has been fixed for the IPO. It must be compared with other companies (Pierce) involved in the industry.
- The company whose IPO subscription has been offered, its P/E (Price to Earnings) ratio, P/B (Price to Book) ratio and how much debt the company has ie D/E (Date to Earnings) ratio must be seen. . The less it is, the better. However, its standard is different for every industry as to what this ratio should be.
- Many traders/investors also look for gray market trends before subscribing to any IPO. With this, they estimate how much profit they can get at the price fixed for the IPO subscription. Although this strategy can be effective only for short-term investments, but if you are thinking of investing for a long time, then it should be decided on the basis of the fundamentals of the company.
Note: The information given here is for information only and must be consulted with the advisor before taking investment decision.
(This story is based on a conversation with Abhay Doshi, Founder, unlistedArena.com.)