Simple steps to follow pick an IPO
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Why does a company go public?
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A company can raise money using 2 options. One is debt and the other is equity. Both of them have their advantages and disadvantages. But, with the booming stock market, a lot of companies are choosing the second option by taking their company public by issuing IPO's. In a booming market, it is very easy to raise money for the company at an attractive price. From an investors point of view, he should know the following about an ipo before investing.
What is book building?
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Securities and Exchange Board of India (Sebi) guidelines define book building as "a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built-up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document".
The purpose of book building is to determine an efficient price for the ipo depending the bids that are recieved at the various prices in the price band. After the book closure, the issue price is decided based on the bids received.'
Retail category %
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In IPOs, which are through the book building process, 50% of the offering is reserved for qualified institutional investors, 35% for retail investors and 15% for high net worth individual investors.
1)Any company which issues an IPO has to file a red herring prospectus as mandated by SEBI guidlines which contains all the information about the company. One needs to carefully scrutinize the business the company is involved into, its past financial track record, the purpose of raising the capital, management's track record, its future plans and most importantly the valuations i.e, is the issue price justified?
2)Rating: Sebi has made it mandatory to rate every ipo. An investor can look for the rating to get an idea about the quality of the ipo.
http://www.sebi.gov.in/faq/ipo.html
3)One must always look at the subscription details. An IPO which is poorly subscribed has less demand from the public and must be avoided. The listing price is governed by the demand for the IPO. An issue which is heavily subscribed generally lists at a good premium to the issue price. The catch here is that the chances of allotment are inversely proportional to the number of times the IPO gets oversubscribed.
4) Size of the issue : The amount upto which a retail investor can subscribe is limited to 1 lac. Larger the size of the issue, better the chances of allotment for the retail investor.
5)One can also look at the grey market premiums for the IPO as a clue to the listing gains.
-MarketGuy
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Why does a company go public?
-----------------------------
A company can raise money using 2 options. One is debt and the other is equity. Both of them have their advantages and disadvantages. But, with the booming stock market, a lot of companies are choosing the second option by taking their company public by issuing IPO's. In a booming market, it is very easy to raise money for the company at an attractive price. From an investors point of view, he should know the following about an ipo before investing.
What is book building?
----------------------
Securities and Exchange Board of India (Sebi) guidelines define book building as "a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built-up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document".
The purpose of book building is to determine an efficient price for the ipo depending the bids that are recieved at the various prices in the price band. After the book closure, the issue price is decided based on the bids received.'
Retail category %
-----------------
In IPOs, which are through the book building process, 50% of the offering is reserved for qualified institutional investors, 35% for retail investors and 15% for high net worth individual investors.
1)Any company which issues an IPO has to file a red herring prospectus as mandated by SEBI guidlines which contains all the information about the company. One needs to carefully scrutinize the business the company is involved into, its past financial track record, the purpose of raising the capital, management's track record, its future plans and most importantly the valuations i.e, is the issue price justified?
2)Rating: Sebi has made it mandatory to rate every ipo. An investor can look for the rating to get an idea about the quality of the ipo.
http://www.sebi.gov.in/faq/ipo.html
3)One must always look at the subscription details. An IPO which is poorly subscribed has less demand from the public and must be avoided. The listing price is governed by the demand for the IPO. An issue which is heavily subscribed generally lists at a good premium to the issue price. The catch here is that the chances of allotment are inversely proportional to the number of times the IPO gets oversubscribed.
4) Size of the issue : The amount upto which a retail investor can subscribe is limited to 1 lac. Larger the size of the issue, better the chances of allotment for the retail investor.
5)One can also look at the grey market premiums for the IPO as a clue to the listing gains.
-MarketGuy
