Know IPO Buying Strategies [Investment Strategy for Beginners]

1. Keeping an Eye on Institutional Buyers

It is a very tedious task to conduct thorough research for every IPO. Reading the prospectus, searching over the internet, discussing with your fellow investors will never give you clarity. There are even chances that certain websites may show biased information and views which may portray a company to be good, although it is not!

It is however a good practice to keep a close eye on the Qualified Institutional Buyer category of an IPO. If the QIB category is showing complete or over subscription, the IPO can be trusted because the QIBs have far better approach to the details of the company when compared to retail investors.

2. Utilization of Your Money

Once you have selected an IPO, you should check out its prospectus. The prospectus is a detailed document which will also have insights on how the company plans to use the capital which will be raised form the public. The plan of action can have various different aspects planned like better infrastructure, expansion of products and sectors or simply paying off debts. Any of these aspects or a combination of these should have potential for growth. If the prospects are promising, it is worth to invest in the IPO.

3. Investing at Cut-Off Price

Allotment in an IPO is very important. Most of the successful IPOs are oversubscribed, which means that the number of applications received are more than the number of available shares. If you are very keen on getting the allotment, it is recommended to bid at the cut-off price of the IPO. It will increase the chances of allotment because that way your application will be considered, irrespective of the final allotment price.

4. Evaluation of Company’s Prospects

The entrance time of the company into the market and competitors prevailing in the space should ve evaluated before selecting any IPO. The history of the company as a private business, their growth story and the followed fundamentals, each and every detail should be considered before you plan to invest your hard-earned money in IPO.

5. Filling Out the Form with Precise Details

The application form for IPO should be filled with utmost care. You should fill each and every detail asked I the form accurately. For instance, you missed out on filling out an ECS refund, in such a case, it will be difficult to get refund in your bank account. There are high chances that your application form can be rejected if it is not filled properly.

6. Choosing a Good Broker

The IPOs which satisfy all the above parameters will obviously have a very high number of applications, reducing your chances of getting the allotment. However, there are various brokers and IPO portals which can open the door to new and interesting IPO stocks. They can ensure decent allocation for you based on their connections.

7. Valuation of the Company

This is one of the most important and tedious process while selecting an IPO because it requires technical analysis. At the time of IPO, the investment banker of the company along with the under-writers judge the management quality and returns before concluding the final offer price. It is very important to compare the valuation of the IPO with a listed peer.

8. Evaluation Using Financial Formulas

This process requires evaluating the company based on financial formulas. Various aspects of the company are calculated like return on equity, price to book ratio and price to earnings ratio.

These are some of the parameters which can help you in evaluating a public offering before investing in it. However, it is not an easy task to evaluate a company on all the above parameters. This is where an investment advisor comes at rescue. They can perform all the analysis and research and help you pick the right investment for all you need. Happy Investing!