IPO Analysis: What You Need to Know Before Investing

An IPO or Initial Public Offering is the process of offering shares of a private company to the public for the first time. Investing in an IPO can be a rewarding opportunity, but it also involves some risks and challenges. Therefore, before you decide which IPO to buy, you should consider the following points and explanations:

• Read the prospectus: The prospectus is a document that contains detailed information about the company, its business, financials, risks, objectives, and how it intends to use the funds raised from the IPO. You should read the prospectus carefully and understand the strengths and weaknesses of the company, as well as the potential returns and risks of investing in it.
• Analyze the valuation: The valuation is the price at which the company sells its shares to the investors. You should compare the valuation with the company’s peers, industry, and growth prospects, and determine whether it is fair and reasonable. You should also look at the price-to-earnings (PE) ratio, the price-to-book (PB) ratio, and the earnings per share (EPS) of the company, and see how they compare with the industry averages and benchmarks.
• Check the demand and supply: The demand and supply of the IPO shares can affect the listing price and performance of the IPO. You should check the subscription status of the IPO, which indicates how many times the IPO has been oversubscribed or undersubscribed by different categories of investors, such as qualified institutional buyers (QIBs), non-institutional investors (NIIs), and retail individual investors (RIIs). A high subscription rate means that the IPO is in high demand, and vice versa. You should also check the allotment status of the IPO, which shows how many shares you have been allotted, if any, and the refund status, if applicable.
• Evaluate the market conditions: The market conditions can also influence the outcome of the IPO. You should consider the overall sentiment, trends, and volatility of the stock market, as well as the specific sector and industry of the company. You should also be aware of the macroeconomic factors, such as inflation, interest rates, GDP growth, and foreign exchange rates, that can affect the business environment and profitability of the company.
• Know your purpose and goals: Finally, you should know your purpose and goals of investing in the IPO. You should have a clear idea of why you want to invest in the IPO, what are your expectations and objectives, and how long you want to hold the shares. You should also have a risk appetite and a exit strategy, in case the IPO does not perform as per your expectations.
• Analyse Grey Market Price: Grey Market Premium (GMP) is the gap between the price at which IPO shares are bought and sold in the grey market and the actual IPO issue price. The grey market is like an informal market where IPO shares are traded before they are officially available on the stock exchange1. GMP is a useful sign that shows if an IPO might give you more money or less when it gets officially listed. If the GMP is positive, it means people expect the shares to be listed at a higher price than the IPO price. On the other hand, if the GMP is negative, it suggests the shares might be listed at a lower price than the IPO price.