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How to Analyse an IPO

14 Jul 2023

Investing in an IPO is one of the best ways to create wealth in the long term. You get to participate in the company’s growth quite early on, giving you the chance to grow your capital. However, there have been many instances where companies either had stellar debuts in the stock exchange and then later failed to impress or did abysmally when their shares were listed. 

This is precisely why it is important to carry out an extensive analysis of an upcoming IPO before investing in it. Proper analysis will give you just the information you need to make an informed investment decision. So, let’s take a look at how you, as an investor, can analyze an IPO. 

How to analyse an IPO?

Analysing an IPO is a multi-step process that involves inspecting the company in detail. Here’s a quick look at the steps that you can follow to ensure that you invest in a good IPO.  

1. Get access to the prospectus

Seeing as there might not be much information about a company issuing its shares for the first time, you might find it hard to conduct a thorough analysis. Here’s where the prospectus of the public issue comes into the picture. It is an important document that every company that wishes to issue its shares to the public files with the SEBI. It contains extensive financial and non-financial information about the company and its upcoming IPO 2023

2. Focus on the financials 

The financial health of the company is the most important aspect that you need to look into to determine if an IPO is viable or not. A good company must not only be profitable, but also have good cash reserves and must generate consistently increasing revenue. One good way to analyse the financials of a company is to take a look at its ratios such as cash flow ratio, debt-to-equity ratio, PE ratio and PB ratio, among others. 

3. Check out the purpose and objectives of the IPO 

Another way to get an idea of the viability of an IPO is to take a good look at what the company plans to do with the proceeds that it receives from the IPO. You can also find this information in the prospectus that it issues. Ideally, a company should use the IPO proceeds to further its business objectives or expand its operations. Investing in it is less than ideal if the company is planning to use its proceeds to pay off its debts.

4. Get an idea of the demand for the public issue 

Public demand is a great way to gauge an IPO. If the demand for a public issue is high, it will most likely be oversubscribed. On the other hand, if the demand is low, the issue will mostly be undersubscribed. Investing in undersubscribed issues is not ideal at all since there has not been much of public interest. 

5. Analyse the future growth prospects of the company 

In order for an IPO to do well when it hits the market, the company’s future growth prospects should be sound. If a company isn’t putting much effort into expanding its business or using its profits to compete with its rivals by planning new product or service launches, it is said to have low future growth prospects. It is best to avoid investing in such companies.  Discover the latest updates and insights on the Upcoming IPOs 2023!


Now that you’re aware of how to analyse an IPO, go ahead and check out the different upcoming IPOs available for subscription to see if they’re sound. If they are, you can consider investing in these public issues. However, keep in mind that you need an active demat account to apply for an upcoming IPO. Visit Motilal Oswal today to open a demat account and a trading account in your name through an entirely online process. 


Related articles: 5 Tips for Investing In IPOs | What's the big deal about IPOs | Clearing the confusion from IPOs | IPO in India- The future looks bright | Upcoming IPO

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