Establishing a brand requires several factors, the most crucial of which is trust. It should be able to attract suitable investors, organic sales and marketing executives, manpower with the appropriate skill set, and a solid distribution channel, among other things. Managing a brand, on the other hand, is a quite different matter. If the brand is successful and consumers trust it, it allows the owner to branch out into other enterprises, and this is when he most needs you to spend your time and money on it. This is where an Initial Public Offering (IPO) takes the spotlight.
What is an initial public offering (IPO)?
An Initial Public Offering (IPO) occurs when a new or existing firm with no shares listed on the stock exchange decides to sell its equity to the general public (IPO). The money raised from the sale of such shares is used to buy new machinery, land, or pay off the company’s obligations and liabilities. Individuals who invest in the company by purchasing shares are rewarded (in the form of dividends) or can sell the shares at a profit when the share price is advantageous for trading.
Brokers can help you purchase shares of the listed company. This is referred to as buying equities from the secondary market. When a firm issues an IPO in India, you can buy shares directly from the company. This is more profitable than buying on the secondary market since corporations issue their shares at a discount and then list them at a premium when they are listed. You may also make money by selling them.
India’s First Public Offering
The primary market regained importance in 2015 after a long time. In 2015, money to the tune of INR 60 crore was raised through the public equity market, and the trend has continued. When you consider the amount of money obtained through IPOs in India, the year-over-year rise is staggering – up 844 percent from 2014! Market analysts predict that the growing trend will continue, with higher collections.
While the numbers are impressive, there are a few things you should bear in mind before investing in an IPO in India.
What should you consider before investing in India’s initial public offerings (IPOs)?
- Be well-informed about the company: Before applying for an IPO in India, make sure you read the prospectus. This document offers extensive information about the company’s financials, market performance, and the goal of the IPO in India. The prospectus can be found on the company’s website or the SEBI website. Also, see if the promoter or the company is involved in any substantial litigation. At all costs, stay away from repeat offenders.
- Complete paperwork ahead of schedule: Any broker’s office in India can provide you with an application form for an IPO. Before the deadline, fill out the form and write a cheque/ or apply online for IPO for the amount you want to apply for. Then you can send it to the collecting bankers or merchant bankers’ agents.
- Keep an eye out for oversubscription: Each IPO has a pre-determined, limited number of shares that are proportionately allotted to each investment category. If there is a lot of demand for a particular IPO in India, the number of applications may outnumber the number of shares listed. This means that shares are distributed proportionately, and you may receive fewer shares than you applied for.
- Shift your attention away from listing profits: While listing profits are appealing, if the firm is fundamentally good and short-term, the share price will continue to rise long after the company’s initial public offering in India.
- Check the valuation: This is by far the most significant factor to consider, as well as the most difficult for ordinary investors to determine. This approach is highly technical, yet it is a little biased because investment bankers evaluate management and earnings before determining the ultimate offer price. Compare the IPO’s valuation in India with that of a listed peer on the secondary market to make things easier. If the IPO is for a new company, use metrics like the price-to-earnings ratio, price-to-book ratio, and return on equity to evaluate it.
There are a few myths about IPOs in India
• Investing in an initial public offering (IPO) allows you to get in on the ground floor: Other parties have already invested in a firm by the time you invest.
• It must be a wonderful investment if everyone is excited about an IPO in India.
• If a corporation wants to go public, it sounds financially strong: Many businesses decide to go public when they shouldn’t.
So, when applying for an IPO in India, keep the above-mentioned pointers and myths in mind, and you will stand to enjoy profit in the long run.