Equity Investing: Essential Factors To Consider When Selecting An IPO


Numerous companies are coming up with means of their initial public offerings (IPO) in the present However; you need to be aware when selecting the best IPO to invest in. Some investors believe they can invest in IPOs will yield huge returns on their listing, but this isn’t always the case.

There have been IPOs in the past when investors were able to lose money at the time of listing or afterwards. Finding a reliable IPO for investing in isn’t impossible however it is a challenging job that requires a thorough and thorough investigation.

Let’s look at some important ways to select an IPO to choose one.

DRHP, an investor’s Bible

One of the companies’ most significant sources of information is their ‘Draft red Herring Prospectus (DRHP)’. The company must submit the DRHP to the Securities Exchange Board of India (Sebi) when planning to launch an IPO. The DRHP will provide you with information regarding the financials and other aspects of the business, such as the level of management’s competence and past or working experiences, its employees’ qualifications and the projects handled. It can assist you in identifying the risk and opportunities associated with the company.

An underwriter who is a strong company is a sure bet

If you want to assess a firm’s legitimacy, search for brokers associated with the company. This isn’t a standard to be successful, but a more likely indicator of quality as large investment banks tend to join with reputable associations.

Unknown or maybe unpopular underwriters are an excellent choice for any business that claims to be the most trusted. The well-known ones are cautious and select to underwrite a company with worth.

Reading the prospectus is essential.

You might believe that the prospectus will do little to inform you because the firm creates it. We believe that the prospectus isn’t untruthful and completely under that of the company.

This isn’t a reason to avoid going through it. You can learn the basic structure of the company’s vision through the prospectus. It is possible to find out the company’s plan with the funds raised, the risks associated with it, and the linked opportunities.

It is advisable to select companies with goals focused on research and expansion, marketing and related aspects.

Subscription by QIB

Another method of picking an IPO for investing is to check for the subscription in its qualified institution’s buyers (QIB) category, as it will give you an idea of the price and quality of the issue. Institutional buyers have greater access to information that private investors might not have. They invest in IPOs following extensive research and won’t put their money into a latest IPO, which could result in negative returns. A very low subscription could mean that institutional investors don’t see the issue as a viable option; therefore, such situations are best avoided. If you discover that the QIB category is being oversubscribed, it is possible to proceed. A high percentage of oversubscription could also result in massive retail subscriptions, and the chances of allotment will be lower and could render the whole exercise ineffective.

In-depth details about the business

When you dig into the specifics of the business and its goals, you will determine the company’s quality. The process of obtaining information on these businesses is often tricky; therefore, we at Top10stockbroker provide you with all the essential information.

It is possible to find the details of each IPO you’re considering investing in. You can search for and locate specific information on the market, details about competitors, company financials, goals and legal IPO procedures, and many other points.

Wait till Lock-In Period Is Over

The lock-in time is the time frame during which investors are unable to sell or receive their investments. At this time, no investor is allowed to decide to sell their investment. But, when the time is completed, investors will be allowed to make a sale of their assets.

If you can wait until the time for locking is up, you can then analyse the performance of stocks, and in doing this, you’ll be protected from any risk.

Look over the value

This could be difficult for those who invest in retail businesses, but it’s an important aspect that should not be ignored. Ratios such as price-to-earnings and price-to-book value must be considered and evaluated against their peers to determine the correct value. If the company’s price appears excessively priced relative to shares of other companies and the company’s peers, then the investment should not be taken.

The financial performance of the company

It would help if you also looked at the performance of the company’s financials on a year-to-year basis. If the company’s revenues and profits are increasing, this is a sign that the business is doing quickly and has potential growth. If the performance of the business is less than that of the industry, it’s likely to be a performer that is not. This is why you need to consider investing in better alternatives.

Know the risks, and future outlook

Understanding the risks involved with every company is a crucial first step before investing. The market conditions, the number of competitors, and the quality of the product and service can all play a significant role in this. The company’s prospects should be assessed when investing in the long run through IPOs. It is possible to select companies with strong and unique business models that will last for the foreseeable future.

Learn about the business

In general, beware of investing in a company you aren’t familiar with. You should only invest within the confines of your expertise. This is because a thorough knowledge of a company can assist you in making better choices. It is always best to conduct your research rather than relying on information, advice or rumours from the marketplace.

Know the Intention behind Investing

Before investing in IPO, It is vital to be aware of the primary motive of your investment. If you’re keeping up-to-date with the growth of the business or have a clear understanding of the market within which the company is operating, you can put your money into IPO.

The first rule of taking part in an IPO is not to borrow money from any person since it doesn’t guarantee returns. If you fail to make it back, the entire amount you invested is lost.

Additionally, you’ll have to pay for the interest that you will have to deliver on the borrowed funds. Therefore, you need to make an intelligent choice and be aware of why to invest in a recent IPO.

Things to look for in a firm

Explore the strength of your business, i.e. the verticals of business performance, performance markets, management, and much more.

It is essential to examine the growth potential of the company that you are interested in. This is because revenue growth is likely to trigger a rise in the price of a stock.

You should also look into who is in charge of the IPO and determine whether they intend to use the IPO as a way for the company to go out of business. This is a negative sign.

It would help if you looked into the motives of the issue to know how the profits from the IPO could be used. It is advisable to look into the IPO only if you have growth potential.

Check the price to ensure you don’t overpay for the IPO, even if the company is well-known.


After companies have decided to go public and begin moving towards an IPO, The future appears uncertain until an offering has been entirely made.

IPOs are not without risk; not every company can offer the potential returns on the money you’ve put into the IPO. Therefore, before investing your hard-earned cash in an IPO, you must be sure of the risks.

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