stock market After the revival in the IPO, once again the hustle and bustle in the IPO market has intensified. New companies are coming out with IPOs one after the other. If you are also an IPO investor, then by taking care of some things, you can not only avoid losses but also get strong returns on your investment. We are telling you those 5 things which must be kept in mind before investing in any IPO.
1. Financial position of the company
Before investing in an IPO, find out as much as possible about the financial condition of the company launching the IPO. Analyze how the company has performed over the years, how much profit it has made, how much revenue it has generated and how much money it has borrowed. You should subscribe to an IPO only if the issuing company appears to be financially strong. You will find information about the company’s financial position in the Draft Red Herring Prospectus (DRHP). This is a document that a company has to file with the Securities and Exchange Board of India (SEBI) to get approval to issue an IPO. You can also visit the company’s website to know the financial position.
2. Promoter in the company
Before investing in IPO, definitely know about the promoter and management team of the issuing company. These are the people who run a company and make important corporate decisions. Companies that have strong and experienced promoters generally have strong growth potential. Shares of such companies can increase significantly over time and you can get excellent returns by investing in their IPO.
3. Risk and Strength
Every company has its own strengths and risks. It is very important to do SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis of a company before investing in its IPO. If the strength outweighs the potential risks, you can place your bid. For example, if a company has a good market share and has an efficient distribution network to meet the needs of its customers, its IPO can yield good returns.
4. Valuation of IPO
The valuation of an IPO depends on the price at which shares are first issued to investors. This is one of the most important factors that you should analyze before subscribing to an IPO. If the IPO of a company seems overvalued, it is better to avoid investing in it. However, if an IPO seems fairly priced, you can bid for it to get higher returns. The best way to decide whether an IPO is fairly priced or not is to compare the issue price with shares of similar companies. Has to do with prices.
5. Stock market conditions
Last but not the least, you should look at the current market conditions before subscribing to an IPO. If the market is bullish, then IPO can give good returns. However, even the best IPOs make losses or deliver low returns during bear markets.
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