Upcoming IPO: Investing in IPO for the first time? Important things to check before buying

India has seen a large number of companies issue their Initial Public Offerings (IPOs) in the last one year and there has been unprecedented response. After a year of seeing a boom and record investments, dozens of startups and companies are lined up Dalal Street to be listed there. As of now, more than 30 IPOs are awaiting approval from the Securities and Exchange Board of India and some companies are under the watch of the market regulator. The LIC IPO, which is said to be the biggest ever IPO in India, is also expected to be signaled by the government soon.

How many companies are trying float ipoGoing with the flow, many new investors are getting inclined to invest in them. However, there are a few things that young investors should keep in mind before investing in an IPO this year.

Here are the key things to remember before investing in an IPO

1. background checkIt is always important to read the past of the company before investing in any type of stock, especially an IPO. Before investing, you should always check the financial history of the company and understand its growth potential. This will also explain why the company concerned is bringing the IPO.
2. Read the Red Herring ProspectusBefore issuing a public offering, companies will mandatorily submit a draft red herring prospectus (DHRP) with the markets regulator SEBI. Here, the company gives details about how the company plans to use the proceeds from the IPO and what the risks could be.
3. How the income is used: If the proceeds are used to fully pay off the company’s debts, it is not advisable to invest in an IPO. However, if the company uses a portion of it for general corporate purposes or raises further funds, investors can be assured that there is potential for growth.
4. Check Company Valuation: Before investing in an IPO of your choice, you must go through the valuation of the company. Depending on industry parameters, the offer price may be undervalued, overvalued or undervalued. In addition, it is important to examine the financial performance of the firm over the years. If it is doing well in terms of performance, then investing in that IPO can be a good option.
5. investor intentIt is always important to understand what you as an investor want from an IPO. If your investment horizon is looking for quick returns and not holding stocks for long, you should choose an IPO based on the market sentiments. You can also choose to opt for an IPO with long-term profitability, depending on how the company positions itself with its strategies. You should not go with the flow just because an offer is being promoted.

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