India’s primary market is witnessing a busy September with many companies coming to the market across mainboard and SME segments. Recent reports have highlighted weeks with as many as 16 IPOs opening for subscription. Choosing an issue should involve more than looking at the latest GMP or expected listing gains. Understanding how to apply for IPO in India is only the first step. The more important question is how to evaluate the company’s offer structure before placing a bid.
Table of Contents
Definition of an IPO
IPO is the process through which a private company offers its shares to the public and seeks listing on a stock exchange. An IPO can include a fresh issue, where the company raises new capital for existing shareholders to sell shares. Fresh-issue proceeds can potentially be used for expansion or other stated corporate purposes. Investors should read the company’s offer documents and understand its business.
How to Evaluate an IPO
1. Understand the Business
Look at its products or services with sources of revenue. A business with strong historical growth still needs to be evaluated in the context of its industry and future opportunities.
2. Check Financial Performance
Review revenue and debt over several years. Do not focus only on revenue growth. A company can report increasing sales while having weak cash generation or rising debt. Important indicators include:
- Revenue growth
- Profit growth
- EBITDA and net margins
- Operating cash flow
- Debt-to-equity
- Return on equity
- Earnings per share
3. Examine the IPO Valuation
A good business can still be expensive at the IPO price. Compare the company’s valuation multiples with listed competitors to consider growth rates and business risks.
4. Study the Use of IPO Funds
Check how the company intends to use the money raised. Expansion and debt reduction may have different implications from an IPO that is predominantly an OFS. Understanding the purpose of the issue can provide useful context when assessing the offer.
5. Read the Risk Factors
SEBI advises investors to carefully read the risk factors in offer documents before making an investment decision.
Investing Tips for Beginners to Learn
Here are practical IPO investing tips for beginners:
- High subscription numbers indicate demand during the offer period as they do not guarantee future performance.
- Grey-market activity is unofficial and can change quickly.
- Make sure the application fits your available funds and risk tolerance.
- Understanding how the issuer differs from established listed companies can provide valuable context.
- An investor interested in short-term listing performance may evaluate an IPO differently from someone considering holding the company for several years.
How to Apply for IPO in India
The process is relatively straightforward. Investors can apply through the ASBA mechanism or use UPI for eligible public issues. The application amount is blocked in the investor’s bank account rather than immediately transferred. SEBI also provides guidance on applying through UPI. An online application involves:
- Select the IPO through your broker or supported intermediary.
- Enter the number of lots you want to apply for.
- Enter your UPI ID if applicable.
- Submitting the application.
- Approving the UPI mandate through your UPI application.
- Keeping sufficient funds available until the mandate is processed.
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Conclusion
A crowded IPO calendar can provide investors with more opportunities as it also makes disciplined evaluation more important. Examine the company’s fundamentals and risks. Understanding how to apply for IPO in India is useful by knowing how to evaluate an IPO can help investors make more informed decisions.
FAQs
Q1. How do I choose the right IPO in India?
Review the company’s business model and risk factors by comparing the IPO with relevant listed peers before deciding.
Q2. Is GMP important when evaluating an IPO?
GMP can indicate unofficial market sentiment as it is not an official exchange metric or a guarantee of listing performance.
Q3. How to apply for IPO in India using UPI?
Select the IPO through an eligible broker and submit the application within the applicable timeframe.
Q4. Can beginners invest in SME IPOs?
SME IPOs have different characteristics and can involve additional liquidity and risk considerations.
Partha Ghosh is the Digital Marketing Strategist and Team Lead at PiTangent Analytics and Technology Solutions. He partners with product and sales to grow organic demand and brand trust. A 3X Salesforce certified Marketing Cloud Administrator and Pardot Specialist, Partha is an automation expert who turns strategy into simple repeatable programs. His focus areas include thought leadership, team management, branding, project management, and data-driven marketing. For strategic discussions on go-to-market, automation at scale, and organic growth, connect with Partha on LinkedIn.
