How To Make The Right IPO Choice?

At a time when everyone is inclined to make quick bucks, IPO is also a good way to look at such income stream in a short span. But other than the market momentum, your choice of an IPO amid high euphoria in the primary market space shall be highly crucial.

Now there is a case in point particularly for long term investors in IPO as huge number of IPOs in a bull run may always not be indicative of their long run success. But this case has been made considering past trend and in a growth story like India we cannot completely ignore the debut of some of the promising companies'.

Few key points to make a good IPO choice:

1. Going through the DRHP and how the proceeds are being planned to be mobilized will likely hint at the company's prospects:

Say if the DRHP provides that the company solely intends to repay debt using the proceeds then it shall not be a lucrative bet for investors in the long run unless and until the fundamentals are in favour.

Other pointers can be the company's track record, financials, management that shall offer a deep insight into the company. Most of such information can be gathered from the DRHP itself.

2. Determining growth potential of the industry and the company coming up with the IPO shall be crucial:

The growth potential of the industry in which the company deals in and its likely capacity to tap the possible future opportunities shall be critical in the investor's success. Nonetheless, if you are not able to determine the company's business that better not invest in such an enterprise even for likely listing gains.

3. Promoters and management role cannot be neglected:

Many a times through the primary market issuance, promoters look to divest their stake and as per law even after the stake sale, promoters need to mandatorily hold 20 percent stake, so factor in all such criterions.

4. Pricing:

This is an important consideration and for it the two variable that can be looked upon are price to sales and price to earnings. Do not just in the sake of a good reputed company go for an overly priced IPO. Here in the comparison of these variables is made with the peer companies.

5. On the basis of your risk and investment strategy, churn out whether you wish to invest for short term or long term:

All the assessments need to be made when your putting your hard earned money into an IPO and you need to note that fundamentals of the business should form your long term investment decision into the IPO and likewise market momentum can make you to decide on for betting for just the listing gains. All in all be mindful and skeptical for a better investment decision to just go right in your IPO choice.

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