IPO - Initial Public Offerings

Companies issue IPOs either when they wish to raise capital for expansion or if the promoter wants to sell part of his shareholding. The money paid by investors for these new shares goes directly to the company (unlike public trading at a later stage wherein money passes between investors). Although the company doesn’t repay the capital, its shareholders get the right to future profits and capital distribution, as and when the case arises.

Companies that are already listed also come out with public issues, known as follow-on public offers. The shares of existing shareholders get diluted but they expect that with more capital being invested in the company, the value of their shares will increase in the long term.

There are two types of IPOs :

An underwriting firm helps companies determine the kind of security to issue, the optimum price and the best time to introduce it in the market. Investing in a winning stock ahead of everyone else can spell great success. But a misguided judgment could end up in disaster. Investors should only invest in those IPOs whose fundamentals are sound after considering all relevant factors. Since companies would want to make their issue a success, pricing is generally kept attractive, although some companies overprice their issues to make a quick profit.

Ensure that you get a copy of the full prospectus and read it carefully before investing. Check the antecedents of the promoters and if they have other listed companies. Compare valuation with others in the industry, to make sure that it is indeed an attractive investment option.  Ensure that you bid at the price you consider appropriate and not get carried away by the hype surrounding an issue.

To know more about investing in IPOs, please visit our IPO desk

Please Contact us ( 022-23876060 ) [email protected]