Initial Public Offering (IPO) is a process of selling new shares to the investors for the first time.
IPOs are issued to investors in order to raise capital to expand the business or modernize the present business.
Investing in a good company IPO can fetch goodreturns. However, it all depends on the company's performance and risk factors associated with it.
This year 2015 we may see come upcoming IPOs in India. Deciding on which IPO to go must be a difficult task for many.
Here are few points to look before you decide on any upcoming IPO.
1) Company performance
One needs to look at the previous performance of the company and compare with the same with others companies from the same industry.
Also read: What is ASBA in Initial Public Offer or IPO?
2) IPO grades
IPO Grading is intended to provide the investor with an informed and objective opinion expressed by a professional rating agency after analyzing factors like the business and financial prospects, management quality and corporate governance practices etc.
3) Issue Pricing
The companies can freely price their equity shares. However, they have to give justification of the price in the offer document or letter of offer. Check if the issue is overpriced or under priced. Compare the P/E ratio with its peers.
4) Background verification
Keep track of the promoters and underwriters involved with the company as any issues related to them will have an impact on the IPO and stock. For example, criminal proceedings against any of the promoters or any payment default history.
Also read: Who is a Book Running Lead Manager in an IPO or Public Issue?
5) IPO Prospectus
Make sure you read the company's draft prospectus and risk factors, which will give you an idea of the investing company as private company information will be less available in the market.