Things to Check before Applying for IPOs. For Short and Long Term Both.

Things to Check before Applying for IPOs: In those days Initial Public Offering (IPOs) become very popular everywhere. After the huge success of the IRCTC IPO in India, so many inverters were attracted to IPOs.

So many people open their Demat accounts with different brokers. They also create a Demat account of their family members and friends to increase the chances of allotments. Here is the list of top discount brokers in India.

In that IPO race, so many new investors also take part. Due to insufficient knowledge, they apply for IPO where they lose money.

To overcome this problem I write a brief article on – Things to Check before Applying for IPOs.

Investors apply for IPO for two Reason

  1. For short Term
  2. For Long Term

Things to Check before Applying for IPOs

For short Term

Some people want to invest in IPO for a short-term period. They make their short-term decision due to analysis of company financials or Capital reasons or any other reasons.

From a short-term perspective, people want to get only listing gains. This is one of the safest investment styles. People stay invested until they reach their investment goals.

If you want to stay invested for the short term then listing gain (Waiting for 2 or 3 days) is a good idea. Waiting for the short term for one or two months can eat your listing profit.

If you look back to history then you will find that maximum IPO loses their listing gain profit in two or three months. But if you want to stay invested for the long term then 2 or 3 years is a good period.

1. Total Subscription

So if you want short-term profit then the first thing you have to check is a total subscription. Total subscription can tell you the potential of that company. More the subscription then you can take an idea that financial of that company can be good.

Vise versa more the subscription less is the probability of getting IPO allotment. You know that well. If you want to increase the chances of IPO allotment then you can check here.

So you have to choose IPO with a maximum subscription. For example Recent IPO “Nazara technology Ltd” was oversubscribed 224 times. This was a good total subscription. On a listing day, it was listed on more than 80% premium.

2. Grey market premium

The gray market is a secondary market where shares trade unofficially. Some intelligent investors invest in IPO after seeing gray market premiums (GMP). Higher the gray market premium higher the probability of listing gain.

3. Market Trend

Things to Check before Applying for IPOs

Always check market trends before applying for IPO. If the market trend is downward then there is the possibility of opening of IPO with a negative discount price. Either the fundamental of the company are strong there is the possibility of a negative opening.

For example, SBI Cards IPO was strong fundamentals but it was listed at a discount price. Because due to the corona crisis there was a negative trend in the market.

So it is important to look at the market trends. Always choose IPO when the market trend is up for short-term listing gains.

For Long Term

We should apply based on the business model, strong financial & strong financials & strong leadership. Strong MOAT companies are good for long-term investment.

For example, if you check the “Gland pharma” IPO you will know that during this IPO there was escalation at the Indo-China border. And in this company majority stake in the company was from Chines firms. So many people do not apply for IPO. The total subscription was also low i.e. 2.06 times. But this company has strong financials. Has strong financial moat. Although low subscription this IPO gave very good listing and in 15 days it went to the upper circuit. Issue price of Gland pharma was 1490 Rs now trading at a price of above 2500 Rs. This is the power of a monopoly business.

It is good to check the prospectus of that company.

1. Management team and background of promoter

Always check management and background before applying for IPO. The management team and promoter are the biggest assets of the company. Collect data like management year of experience. Also, check the working culture of the company.

2. Valuation

Things to Check before Applying for IPOs

Sometimes offer value may be undervalued, overvalued, or fairly valued. To understand valuation you can check price to earning value(P/E) and price to book value(P/B). You can check these values with their sectors or their peers, which are listed in the secondary market.

You can check growth potential, market shares for a better understanding of that IPO

3. Check anchor allotments and inputs from valued research notes.

If you don’t want to check all the above points then simply check views provided by various brokerages in their IPO research notes, they are publicly available.

If you are not satisfied with brokers’ views then check anchor investors’ views. Anchor investors like private equity, mutual funds, banks, and institution can give you clear Ideas.

They are the first to invest in that IPO, They have a better understanding of that company. Such data was announced before IPO.

High the quality of anchor investors it’s better to invest in that IPO.

Thank You!

Happy Investing!

What are RII, NII, QIB, and Anchor Investor?

RII – Retail Individual Investor 
NII – Non-Institutional Investor
QIB – Qualified Institutional Bidder
Anchor Investor – QIB which making the application more than Rs. 10 crores in book building issue.

For how many days does IPO remain open?

Normally IPO remains open for three days.

Can I apply for IPO with multiple applications with the same PAN

No, If you do so your application may reject. You can apply from the different names with different PAN applications.

Can I apply from ASBA without having a trading account?

Yes, you only need a Demat account to credit the allotted share. Not mandatory to have a trading account. If you apply from ASBA application.

Can I sell allotted shares before they listing on the stock market?

No, you can not sell shares before they are listed on the official secondary stock market.

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