An initial public offering (IPO) is the process of offering shares of a private company to the public in a new stock issuance. This allows the company to raise capital from public investors who invest in IPOs in exchange for shares in the company.
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An investor can apply for an IPO through his/her bank account or trading account. Investing in IPOs isn't as simple as it seems, as subscribers to the IPO don’t have in-depth access regarding business model, management quality and vision, growth prospects, product portfolio, or financial trends of the past.
Here are some factors to consider before investing in an IPO, as compiled by Gopal Kavalireddi, head of research, FYERS:
Additionally, one should not be carried away with the hype while investing in the IPO.
"When it comes to IPOs, it's important for investors to avoid the temptation of getting excited with the hype surrounding each IPO and understand the quality of the listing company. Quite often IPOs can be overrated. One method that must be employed is telling oneself that if this is a good investment, it will continue to be a good investment even after the IPO when it gets listed on the exchange," opines Arshad Fahoum, chief product officer, Market Pulse.
Also, investors should do their research and due diligence before investing.
Some of the questions one can ask is, as Fahoum says are:
Is it a market leader? Do the long term prospects look promising?
Is it a well-known brand? Do they hold any important patents/trademarks?
How stable is the company?
Why is the company getting listed?
What is it going to do with the cash it's raising?
And most importantly, is it available at a reasonable valuation?
Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
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