How to Select Best IPO: Last year, due to Coronavirus epidemic there was a huge decline in the stock market. But now there has been a strong recovery in the stock market from the low of March last year and it has strengthened around 100 percent from its low. This strong recovery of the market has again brought investors into the buying mood. Dalal Street is full of energy as the IPO market is booming again. Seeing the boom of the IPO market, many companies are getting listed in the stock market or they have such a plan. It includes some new companies and well known companies like LIC. Apart from this, around 83 companies in steel, cement, healthcare and hotels etc. are in this line. Let us see what investors should look for in choosing an IPO.
What to avoid
There are many high-profile IPOs that give strong returns on the day of listing. But they also have many IPOs which disappoint investors as their long-term performance weakens. This can also be caused by expensive valuation, which limits future profits. Most investors cannot get a share allotment on an IPO until it starts trading in the secondary market. In this way, investors cannot fully benefit from the gains of the first few days. Apart from this, it has been seen that investors can earn better profit by investing in comprehensive stock index.
What should be the strategy in IPOs
This year’s IPO pipeline looks strong and includes many well-known companies. There are several strategies for investing in an IPO. First of all, if you are not getting allotted shares in IPO at the offer price, then avoid buying shares on the day of its listing.
Instead, pay attention to the weight and watch policy. If you are confident that the future of a newly listed company is better, then consider buying when its shares fall.
Investors can also wait until a firm proves its value. Also, the growth in its sales and earnings should not be stable.
Another way to gain exposure in an IPO and reduce the risk of stocks individually is to invest in broadly diversified and low-cost exchange traded funds.
Read the fine print of DRHP correctly
The Security and Exchange Board of India (SEBI) mandates all companies that wish to go public to file a draft red herring prospectus (DRHP) with them. This document is not only the best source of financial information, but also provides other non-financial information about the company. Therefore, always reading the fine print of the company can be helpful in choosing a good IPO. It provides important information about the company’s business, financial, capital structure etc.
Management team and their qualifications
Investors should also know about the promoters of the company and their credibility, management team and their qualifications etc. The prospectus will provide investors with all the necessary information about the IPO, and will help decide whether the company is worth investing.