What Is IPO? Everything You Should Know Before Investing In IPO, Stock Market

New Age IPOs were very popular among investors last year. Paytm i.e. One 97 Paytm, Nykaa, Zomato, Cartrade Tech, etc. There are many such names, whose IPO investors have suffered losses. Even today many of these IPOs are trading close to their issue price and some below the issue price. In such a situation, it is better that you test your pros and cons with a little research before investing.

What is IPO ?

IPO or Initial Public Offering is the process through which companies sell their shares to general investors and raise money. It should be noted here that the company selling its shares is not liable to return the capital to the investor. After IPO, companies can take out FPO i.e. Follow-on Public Offer,

Types of IPOs:

IPOs are divided into three categories – Retail or Retail, Institutional and High Networth Individuals. A retail investor can participate in the investment category. In general, an investment of up to two lakhs in IPO is called retail.

IPO Pricing:

The price of IPO is decided before IPO or Initial Public Offering. This price is of two types – Book Built Offer and Fixed Price Offer. In fixed price offers, the investor can apply at a fixed price decided in advance by the company, whereas in book-built offers the IPO has a price range. A retail investor cannot bid for a value exceeding Rs 1 lakh in a book-built issue. Any bid placed above this will be treated as the HNI category. The rate of Public Offering is decided by the Lead Manager and then it is approved by SEBI(Securities and Exchange Board of India).

View company background:

Before investing in an IPO, it is very important to do a background check of the company. Some companies are very good for long-term investment, some are profitable in short term. Many times investors apply for listing gain and make a profit in ten or fifteen days, but new investors should definitely take expert advice because before investing in this, check the balance sheet of the company and its promoters. It is necessary to study closely.

 Assess the company's potential:

The important question is whether it is right to invest in IPO at present? This can be decided company by company. Before investing, it has to be seen that the IPO in which you are thinking of investing, how is the quality of its shares and how is its pricing? A retail investor should take expert advice for this. It is necessary to see why the company is taking this money.

Check is there any debt for the company:

Before choosing an IPO, see if there is no debt on that company. If yes, how much? Is the company reducing its debt or not? If the company is generating free cash flow, it means that there are better opportunities for further growth.

Check Earnings Per Share:

Before investing in IPO, you must know the Earnings Per Share (EPS) for the current financial year. After this, estimate the EPS for the next financial year. EPS gives an idea of ​​the financial position of the company. If a company has a profit of Rs 20 crore and has issued one crore shares worth Rs 10, then the EPS will be Rs 20. This gives the net profit per share to the shareholders.

Calculate Forward Price-Turning Ratio:

Divide the upper price band by the Estimated Earnings Per Share (EPS) for the next financial year to find the forward price-to-earnings ratio. If there is a forward price-to-earnings ratio, then there is a better chance of investing in an IPO, but if it is higher, then there are chances of lower returns.

Assess risk-taking ability:

Properly assess the risk appetite before investing. At the same time, he should also correctly assess his investment budget and investment goal,

Emphasis on long term investment:

Some people see the stock market and IPO as a means of quick returns, while the truth is that like any investment, IPOs are also better for long-term investments.