Initial Public Offerings or IPOs are offered to the general public when a private company decides to go public. This is the first time that a private company puts out its stock for sale to the general public through an instrument called an IPO. Investors from the general public may subscribe to any IPO and select the amount of shares they wish to be allotted. Therefore, IPO purchase only takes place when a company’s stock (via an IPO) is allocated to an investor. The first thing on any investor’s mind while applying for any IPO is, naturally, which IPO to select.
Back in the 90s (the era of “dotcom”), IPO purchase went a bit crazy. At the time, most investors could well afford to throw their money in the direction of IPOs, being close to assured of great returns. However, that tech bubble died very soon, with great companies doing well initially, only to fall in the weeks after the companies went public and got listed on stock exchanges.
In the current era, India has seen an IPO boom as recently as a few years ago, with the tide of IPOs abating now. Nonetheless, a promising upcoming IPO is on every investor’s mind, especially if the company through which an IPO is being floated shows promising growth potential. When serious investors invest in the best IPO around, they are prone to scrutinise its prospects for the long term rather than seek short-lived gains. While choosing which IPO to invest in, sifting through the plethora on offer may prove challenging to the most systematic investor. However, if an investor goes about selection in an organised manner, they will doubtless find a good IPO to allocate their capital to.
When you wish to invest in an IPO, finance may be on your mind, as you will choose a company and the amount of stocks based on the capital you can afford to invest. When you apply for an IPO, you do not initially need to open a demat account, but you must do some other work that helps you to invest in an IPO. Since new companies float IPOs, the company whose stock you buy is an important consideration in your choice of IPO.
While companies that are publicly traded have swarms of reviews from analysts and information on their working, growth potential, and other relevant information, private companies are difficult to get information on. If you think that the prospectus that comes with an IPO is a good bet to rely on, think again. After all, it is written by the company itself, and may not give you a comprehensive view of the company. You must, therefore, do some research online. You will find out if the prospects of the company are true or being exaggerated.
The best IPO, today, has some of the best brokers backing it. Hence, you must choose an IPO that has a solid underwriter. Quality brokers tend to float good IPOs, and although you may not totally depend on this, it can certainly narrow your search. For instance, if a company like Goldman Sachs underwrites an IPO, you can be quite assured that such a reputable brokerage would only endorse the pick of the bunch.
Investing in an upcoming IPO is not child’s play and IPO purchase may ultimately lead to gains. However, the promise of just gains should not cloud your judgement while investing. You must always read the prospectus of the IPO and be cautious if a brokerage is trying to sell you an IPO with great enthusiasm. You may not have to do a lot of work and open a demat account beforehand, but you do have to work to find out what you can about new companies floating IPOs.