What is IPO and how to choose the right IPO to subscribe - Trade Markets
What is IPO and how to choose the right IPO to subscribe

What is IPO and how to choose the right IPO to subscribe

IPO

Hey hi πŸ‘‹,

Trust you are doing great, I’m doing really great!

As you know that we are going to discuss about the IPO and how to choose the right one for you and I’m going to explain here.

Actually lot of people have forced me to write this blog. Yes, you read it right, forced!

As you all know that I really don’t like forceful acts but this time the force came for a cause of good and I accepted it.

A lot of requests came from our trademarkets.in community, friends, relatives, and colleagues as well by asking how to select the IPOs.

And few people also asked me that how do you choose only those IPOs which are going to do a stellar job on the 1st day of listing on the exchange.

Don’t worry, we are going to discuss What is IPO and how to choose the right IPO to subscribe. So, let’s dive into the topic!

IPO Stands for

IPO full form is Initial Public Offer and that’s it. Now you already learned 50% of this blog!

Hey I’m just kidding, this is just an abbreviation but the real hack is going to start now.

So, basically the objective of a company to come for IPO can be anything.

For suppose, few possibilities of companies going for IPO:

  • Raising Capital (Most of the times)
  • Exit strategy for the existing shareholders (Most of the times previous investors)
  • Gives more market visibility
  • Access the company’s market worth
  • Improves the credibility of the brand
  • Helps them acquire new customers (Not necessarily the primary objective)

IPO Subscription

IPO can be subscribed in different ways.

For suppose :

  • Your Internet Banking Website (ASBA)
  • Trading account (All the brokers will provide this service)
  • From UPI apps as well but ultimately you should be having these 3 things (Bank account, Demat account, and Trading account)

After applying successfully, you can track your application status as well.

It will look some thing like this.

IPO Flow

From the Offer start date to the Listing date it will take 11-12 days but whether if you got allotted the shares are not will get to know in one week from the Offer date as you can also see in the above image.

If you are allotted any shares then you will get those shares to your Demat account a day prior to the listing date. (Keenly look at the above image for more clarity)

For your information, the amount will blocked and it will be in lien funds. If you don’t get shares then they will release this amount back to your bank account πŸ™‚

Choose the Right IPO to Subscribe

Apply for IPOs is one of the easiest thing to do but knowing which IPO to invest isn’t!

So, let’s discuss about the factors involved in it and deep dive to check which one matters most!

Factors to consider :

  • Promoters
  • Any PE firms exiting from the IPO route
  • Last 3 years Financials
  • Company’s Products and Services
  • Customers and Market Size
  • Distribution Networks
  • Digital Presence Score
  • Objective of the IPO

These are from Company perspective but we should be also looking it from our perspective as well. Let’s look into this here :

  • Your Investment Goal
  • What is your Holding Period
  • What do you do if the stock comes down 10% – 20% in 3 days of listing?
  • Do you understand the business of that company?
  • Are you investing for listing day gains?

Company Perspective

  1. Promoters: Promoters are the face of the company because these are the people who are going to actively manage the company and most of the control is also with these people. So, if the promoter has some legal issues and some sort of those things then it’s better to avoid and look for some other IPO πŸ™‚
  2. Private Equity (PE): Basically, these are the investors who invest in a growth stage company and they try to reap out all the possible benefits from that business. If at least 20 % of their stack is going to be still in the company then it’s a great sign to consider that IPO else move on.
  3. Financials: This is one of the most important ones as well. At least look for 3-4 years of Financial statements. Check if there is a steady growth in the bottom-line numbers (Profit after Tax)
  4. Products & Services: To a certain extent this doesn’t matter as far as the above 3 factors are top-notch. For other cases look at the growth potential of the industry of that company because you have to be proactive in this ever-changing world.
  5. Market Size & Customers: Look at the number of customers it has and what is their market size and at what rate their market is growing. Is there a chance that this company can become a market leader in their industry? If yes, then first go and invest πŸ™‚
  6. Distribution Networks: A lot of investors and companies also hardly care about this part of the business because without the right set of distribution channels or mediums no one can grow. In my experience, Google has great distribution channels and markets those products quite well.
  7. The objective of the IPO: Why are they raising funds and for what purpose they are going to use these funds plays a very big role in the success of the IPO. (QIB portion of the IPO also matters and keep an eye on it because this is by default)
  8. Digital Presence Score: This is the strategy I have developed for myself to better gauge the opportunity and I’ll give a brief idea in another blog πŸ™‚

Personal Perspective

  1. Investment Goal: Not just for applying for IPO or Investing, you should be having the goal in your mind before doing any work for that matter. For example, before I started writing this blog, my goal is to make IPO investing simple and rational unlike applying each and every IPO out there. So, before choosing the IPO make sure what is your goal and evaluate whether this will make me achieve my goal or not.
  2. Holding Period: Having this in mind and before taking the decision will help you a lot to pursue this particular IPO or not. Because you no need to be hyper tensed or hyperactive on a listing day morning 🀨
  3. Lose on Listing Day: I think you will get this answer from the above 2 questions. If you skipped it then go and read it. I’m telling you this is very important.
  4. Company Business: You can’t just go and invest just like that. First, you have to go through the above points carefully. If you cheated on the Market Size on the above point then at least now you have to go and understand what kind of business the company is involved in.
  5. Listing Day Gains: If you are looking for this then you are testing the water with your luck. Luck is something which happened to me quite a lot of times but our decision should not be based on luck. Always luck should be incentive to the genuine work we did. However, if you don’t agree with me that’s fine. But still, I urge you to follow all these steps.

I thought of putting this short but what I can I do the topic is like that. But, do you realize that you have read more than 1200 words in less than 5 mins πŸ™‚

Yes buddy, you have done it!

Fyi, it won’t happen with every blog or article you read okay!

It happened because I was talking to you more than just lecturing you.

Hence, we have come to the conclusion part and do follow these steps from now on whenever you invest in IPO’s.

And this is how we are choose the right IPO to subscribe.

And do share this with your friends who have made bad IPO investments and great IPO investments.

Almost, most people have a trading account these days, if you don’t have one and thinking to open it, you can use this.

Let me know in the comments if have any queries. You can email me – trademarkets.in@gmail.com.

Let’s meet with another topic and till then this is Rushi. Happy Investing! πŸ€—πŸ€—

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Rushi