An Initial Public Offering (IPO) is the first time a private company offers its shares to the public. IPOs generate excitement because they offer a chance to invest in a company early in its public journey.
How IPOs Work
A company files a draft red herring prospectus (DRHP) with SEBI. After approval, it announces a price band and opens the IPO for subscription. Investors can apply within the price band. Once subscribed, shares are allotted and listed on the exchange.
What to Check Before Applying
- RHP/Prospectus: Read the company business model, financials, and risk factors
- Valuation: Compare the IPO price with listed peers using P/E, P/B, and other metrics
- Use of proceeds: Is the company raising money for growth or for existing investors to exit?
- Financial performance: Check revenue growth, profitability, and debt levels
Common Mistakes
- Assuming all IPOs will list at a premium
- Ignoring company fundamentals and chasing hype
- Over-allocating to a single IPO
- Not reading the risk factors in the prospectus
Listing Day
On listing day, the stock may open above or below the issue price. There is no guarantee of listing gains. Have a plan for whether you want to hold long-term or sell on listing day.
Disclaimer: IPO investing carries risk. This article is for educational purposes only.
