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How investing in IPOs can be beneficial for you

20 Aug 2019

If you keep yourself up to date with the news from the financial markets, then you would be acquainted with the term IPOs- which stands for the initial public offering of any company which is issued to raise funding from financial markets. IPOs offer a good investment opportunity for people who want to see their income grow in the long term.

However, what is necessary is that the company whose IPO is being subscribed to has the potential to utilize the funds judiciously. In the past couple of months many companies have launched their IPOs after getting a nod from SEBI. To see how investing in IPOs can be beneficial, let us understand what IPOs are and the major points to be kept in mind before investing in IPOs.

What is an IPO?

An Initial Public Offering is an offer made by any company which wants to sell and trade its shares on the stock exchanges. Issuing an IPO directly means selling of a percentage of the ownership rights of the company. The Securities and Exchange Board of India (SEBI) approves all IPOs in all stock exchanges of the country. When a company’s IPO is approved and launched, it turns from a private limited company to a public limited company. Launching and IPO helps a company gain recognition as it can get in touch with new investors to expand its business and fund its growth.

Recent IPOs

Information of launch of IPOs is published on all platforms from Newspapers to TVs to business websites and company’s website. In the past months, the IPOs which have launched are Affle India which is a mobile marketing firm, one of the few companies which are exclusively in the field and are public. Another company whose IPO was launched was Spandana Sphoorty Financial Limited, which is from the NBFC sector offering is services mainly in rural areas. It offers loan products to mainly low-income households, in a bid to improve their standard of living. Another company which has recently launched its IPO is the Sterling and Wilson Solar Limited which is a 2017 Mumbai based company, providing solar engineering, procurement and construction solution. The company manages solar commissions for end users beginning from conceptualizing to execution. On the other hand, IPOs such as Alphalogic Techsys Ltd and Harsha Engineers Limited are also two companies whose IPOs are to be announced shortly.

Things to consider while investing in IPOs

1. Company’s standing and record: It is very important to analyze the company on the basis of its standing in the market. It is also necessary to understand as to the company is at which stage, i.e. whether it is growing and expanding or is it stagnant. If a company is in its growing stages, it would prove to be a better investment than a company which is not.

2. Demand and competition: Often when a company issues its IPO in a market which has high competition, standing of the company can be judged on the basis of the stock prices issued by the company and the stock prices of similar sector companies which are already listed. This can help us get a fair idea of how the company may perform in a long term.

3. Management and products; At the end of the day, it is the company’s management and its products which drive demand and sales. If the company’s management is not strong, its long-term returns will not be fruitful for the investors as the disputes or any fallacy in management would continually reflect on its stock prices. Remember, this company which has offered its IPO will be one of the companies which will decide the stock market’s turns in the future. Hence, a company with a strong and effective management will be more beneficial for the investors in the long run.

4. Ratings of the company: If you feel that you cannot assess all aspects of a company’s performance, you can also take help from a rating agency to find out the rating of a company. There are many private rating agencies which assess and evaluate a company and rank it on various aspects such as its management, profits etc. A rating agency can go a long way in helping you decide which company is fundamentally strong for your investments to grow.

5. Utilizing the funds: It is important for every investor to know where the money raised from the capital markets is going to be invested. Whether it will be used for infrastructure or whether to pay off the company’s debts, makes a huge difference. A company which has a well-designed plan for utilizing its funds would grow in a better manner.

Conclusion

While these points will help you in realizing the value of a company, it will also help you grow your finances. You must make sure that you take help from a certified financial advisor before putting your money in any IPO’s freshly released securities.

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