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IPO investing season is upon us. Last year many startups went public, data from the Bombay Stock Exchange reveals that around 91 until mid-November which includes 40 mainboard listings.

In fact, statistics by Chittorgarh show a total of Rs 49,437 crore was raised from 57 public issues launched in 2023. With high activity in the IPO landscape that could be driven by various reasons, investors are eyeing this opportunity to make profits in 2024.

The same trend is expected to follow this year. In a landscape teeming with options, your success hinges on unravelling the nuances of each IPO, making informed choices, and positioning yourself for financial triumph in 2024. Let’s delve into the why and how of these crucial parameters, empowering you to navigate the complexities and emerge as a shrewd investor in this exhilarating IPO season.

6 key considerations for savvy IPO investors

Reason for the IPO listing

Firstly, it is important to understand the reason behind a company’s decision to go public. You can begin by examining how the company intends to utilise public funds to manage its business. Before raising capital, a company hands out the Draft Red Herring Prospectus (DRHP) to SEBI.

This document also enlists potential risks from the investment as well. So, check whether the company plans to use the funds to pay off its debts, expand its operations, or pursue a merger. By gaining clarity on why a company is going public to raise capital, you can evaluate the investment opportunity more effectively.

Business model

As an investor, it is important to have a clear understanding of the business you plan to fund. Take the time to review the company’s concept, business model, market size and potential opportunities. These factors are critical in determining the potential growth and profitability of the company for shareholders.

Financial health

When evaluating a company’s initial public offering, it is essential to thoroughly examine its financial performance. This includes analysing the firm’s profit trends and studying its records and data. If a business does not have a strong market dominance which shows in sales, investors should avoid funding such companies.

Promoters and management team

When it comes to important corporate decisions and handling business operations, the promoters and management of the company take control. Hence, as an investor, you should be aware of how well-experienced these team members are before investing in the IPO.

Valuation

Not all IPOs are profitable. Just like any other investment, IPOs can fall flat and the main reason could be that the valuation was either underpriced or overpriced. With the financial background information, you can verify if the valuation stated by the company is estimated correctly or not.

Risks and benefits

With all the information from the Draft Red Herring Prospectus (DRHP), you can compare if the IPO will be profitable or not. However, it is critical to review the investment risks and understand the market dynamics as well.

You can do a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis to make a decision. Green signals such as solid market share and a track record of growth can give good returns.

The bottom line

With dozens of companies going public, investors have a lot of options to explore them. The above-listed factors are key to know before an IPO investment. Performing an in-depth analysis of the company especially their financial background if the purpose is long-term investing.