The Indian market is full of fresh opportunities because many companies are preparing for IPOs. An IPO (Initial Public Offering) is initiated when a company makes its first appearance in the public market by issuing shares to both regular and professional investors. While the potential for substantial gains is appealing, diving in without proper research can be risky.

In this regard, this article aims to guide you in researching IPO investing strategically by emphasising critical research steps.

First, Identify the Role of the Demat Account and the Regulatory Framework

Before investing in IPOs, the demat account opening process is your starting point. A Demat (Dematerialised) account stores your securities in an electronic format. This account lets you to purchase, sell and hold shares seamlessly.

You will also need a linked trading account to place bids during IPO auctions.

Importantly, the Securities and Exchange Board of India (SEBI) oversees all IPOs to maintain transparency in investing. SEBI provides detailed records, oversees who qualifies, sets clear prices and schedules events so investors are protected during the application process for an IPO

Where to Look for Upcoming IPOs

Tracking upcoming IPOs requires accessing reliable sources, which are:

• SEBI Website: Explore offers from the official Draft Red Herring Prospectus (DRHP) and Red Herring Prospectus (RHP).
• NSE & BSE Websites: These stock exchanges list real-time IPO updates, including opening and closing dates.
• Financial News Portals: Trusted sites feature IPO calendars, expert opinions and alerts.
• Brokerage Platforms: Firms such as Motilal Oswal research reports help to make online applications for IPOs.
• IPO Tracking Websites: Websites like IPO Central are used to identify IPO issue dates, grey market premiums, and analysis.

Identifying the Role of Red Herring Prospectus (RHP)

The Red Herring Prospectus (RHP) gives you the most complete information about an IPO. It delivers important information on the company and the product or service on offer. Here’s what to focus on:

Company Overview & Business Model

Find out about the main activities, key products/services, planned customers and intended growth of the company. You should also ask, “Is the business scalable and resilient?”

Financial Performance

These metrics allow you to identify the entity’s financial stability along with its current debt and risk factors. For a detailed analysis, consider these factors:

• Revenue & Profitability: Examine trends over the last 3–5 years.
• Debt Levels: A high debt-to-equity ratio may indicate risk.
• Cash Flow from Operations: Positive cash flow is essential for sustainability.
• Utilisation of IPO Proceeds: Check if funds will be used for debt repayment, capital expenditure or expansion.
• Management Team: Strong leadership with relevant industry experience and a clean track record builds investor trust.
• Risk Factors: Understand the operational, regulatory, and financial risks the IPO publisher may have.
• Industry Analysis & Competition: Assess market trends, industry growth rate, and where the company fits among competitors.

To know more about these factors, you can download RHPs directly from SEBI, NSE or BSE portals.

Supplementary Research

Consider these additional resources along with RHP:

• Grey Market Premium (GMP): This represents the unofficial market price of IPO shares before listing. While a high GMP may signal investor optimism, it’s hypothetical and not always reliable (IPO Watch).
• Analyst Reports: Firms like Motilal Oswal offer detailed pre-IPO research with fair valuations, SWOT analysis and recommendations.
• Media Coverage: This includes reporting of daily business transactions, which often include interviews with management, discussions on strategy, and expert takes. For this analysis, focus on data-backed insights, not popularity.
• Peer Comparison: Evaluate the IPO company against listed peers using metrics like P/E ratio, EPS and market share.
• Subscription Levels: Monitor how much the IPO is subscribed, particularly in the Qualified Institutional Buyer (QIB) and Non-Institutional Investor (NII) segments. High subscription often reflects market confidence.

Risks and Considerations

Investing in upcoming IPOs carries specific risks, which are:

• Market Volatility: Newly listed stocks often fluctuate sharply.
• Overvaluation: IPOs can be priced aggressively, especially in bull markets.
• Limited Track Record: IPO companies usually lack a long history of public financial performance.
• Allotment Challenges: Retail investors may not always receive allotments, especially in oversubscribed issues.
• Investment Horizon: Define your goals based on short-term listing gains or long-term investment based on business fundamentals.

Final Thoughts

The journey of IPO investing in India starts with a demat account opening and is sustained by rigorous research. By focusing on fundamentals, dissecting the RHP and using multiple trustworthy sources, you can make well-informed decisions in a rapidly evolving market.

Moreover, investors are also advised to avoid hypothetical values, embrace due diligence, and align their IPO strategy with their financial goals.

FAQs

1. What does IPO mean?

An IPO allows a private business to offer its shares to anyone who wishes to buy them for the first time. It enables investors to invest in the company and gives the issuer the money it needs.

2. How do I start investing in IPOs in India?

If you wish to buy in an IPO, open a Demat and trading account with a broker regulated by SEBI. You need these things in order to buy and keep shares online.

3. How can I get accurate information about IPOs?

You can obtain the latest DRHPs and RHPs from SEBI and catch updates at NSE, BSE or IPO Central. You can also get expert views from the Economic Times and BloombergQuint.

4. What does a Red Herring Prospectus (RHP) mean?

The RHP explains in detail how the company does business, its finances, who leads it, its main risks, and how it uses the funds raised. Get your document from the official websites of SEBI, NSE or BSE for a complete review.

5. Is Grey Market Premium (GMP) reliable?

Greater than Market Price reflects beliefs among investors before listing, but it can’t be regulated and should still be treated cautiously.

6. What are the major risks in IPO investing?

You should be aware of market dynamics, risks from high evaluation, allotment difficulties and small available financial histories of startups launching an IPO.

References

• https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=3&smid=11&ssid=15
• https://ipowatch.in/ipo-grey-market-premium-latest-ipo-gmp/