InvestorQ : I understand there are Rs.15,000 crore worth of IPOs in the offing. How to identify a good IPO and what are the IPOs that I should avoid?
NISHA Nayak made post

I understand there are Rs.15,000 crore worth of IPOs in the offing. How to identify a good IPO and what are the IPOs that I should avoid?

Answer
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VIKAS DELIWALA answered.
8 months ago


THREE THINGS TO VERIFY BEFORE INVESTING IN ANY IPO.

1- WHICH SECTOR IT IS BELONGING TO ?

= SO YOU CAN FIGURE OUT IS THIS SECTOR IS FACING SLOWDOWN OR NOT . EG:- SW SOLAR (SOLAR COMPANY AND ELECTRIC ARE FUTURE) BUT STILL CURRENTLY THIS IPO WAS LISTED AROUND 700 AND NOW AROUND 260.

2- ANALYSE THE VALUATION OF THE COMPANY?

= SOME COMPANIES ARE UNDERVALUED AND SOME ARE OVER VALUED YOU HAVE TO FIGURE THAT PART OUT.

3- FINALLY YOU HAVE TO VERIFY THE QOQ AND YOY GROWTH OF THE COMPANY?

= IF IT'S SHOWS GOOD GROWTH AND EVEN MARKET IS SHOWING BULLISH SINGLE I PREFER THAT'S THE BEST TIME TO INVEST IN THAT IPO.

WELL I HOPE YOU GET A BASIC IDEA REGARDING INVESTING IN IPO.

NOTE:- THERE IS NO GUARANTEES IN STOCK MARKET.


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8 months ago


Let me first focus on how to identify a good IPO? You need to do the same due diligence like you do in case of a secondary market investment. The only difference is that in case of a new issue, not much public information will be available. You need to focus principally focus on management quality, management track record. Profitability of the company’s operations, any pending litigation and contingent liabilities, sustainability of the business model, proposed end use of funds etc. There are no hard and fast rules to identify a good IPO but the above pointers will help you take a more rational decision. One can also take a look at IPO grading by brokers as a benchmark to take a decision on whether the IPO is good or not.

Instead of telling what IPOs to avoid, here are cases where the IPO is best avoided

This is largely an inverse of the point on applying in a good IPO. But there are a few basic cautions or red flags that investors must watch out before investing in an IPO. Here are a few of them enumerated.

a) If you find that IPO valuation too steep when compared to other peers in the industry, you can choose to avoid investing in the IPO.

b) Look at the end use of funds. Ensure the company is raising funds for activities like capital expansion, buying out companies, expansion, diversification etc. Repayment of high cost loans is also understandable. Avoid IPOs where chunk of the funds is going towards buying property or land. These are not productive assets and the company will have a problem generating ROE on the funds raised.

c) Avoid an IPO if the profit track record of the company is too erratic. Typically, solid growth stories will show steady profits. Erratically profitable companies are rarely good investment ideas.

d) Check out the track record of the promoters. Have they floated IPOs in the past? If so, check the price performance of the stocks post-listing. If you are not satisfied you can avoid the IPO.

e) Also check the pedigree of the merchant bankers. Pedigreed merchant bankers are not too keen to take up issues that are not backed by solid promoters since they have their own reputation at stake. This is a solid test of whether to invest in the IPO or not.

By running some of these basic tests you can easily separate the wheat from the chaff and go after the good IPOs.


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AR Kadam answered.
8 months ago


You need to focus on following things when you wish to subscribe to IPO

1. Business of the Co. offered in IPO

2. Management of the Co. and their past record (if any)

3. Performance of the Company v/s Performance of the existing peer companies already listed in the company

4. Issue Price v/s the Price of the existing peer companies