Skip to main content

Evaluating an IPO

 How to evaluate upcoming IPOs
                                                                                                                       


With a number of IPOs in the offing, investors should know how to find out which ones are worth investing in.
                                      
A bull run in the secondary market is usually accompanied with a lot of action in the primary market.In the current bull run, however, very few initial public offers (IPOs) have come to the market. Sebi's guidelines for bringing out IPOs have become stringent. In the wake of a sluggish economic recovery, corporate earnings have not turned robust enough to be able to attract investors. And private equity investors are finding it difficult to get a good price at which they can exit.

Things are, however, beginning to look up. The IPO pipeline is strong. Investors will be willing to look at quality issues if they are available at a reasonable price."

Why are IPOs riskier?

A lot of information is available in the public domain on companies that have been trading on the exchanges for some time. A company's annual reports, media articles and reports issued by brokerage houses are available. Companies also file disclosures with the stock exchanges. In case of an IPO, the investor has to depend almost en tirely on the red herring prospectus (RHP).

Lack of a track record is another issue. You do not know the level of transparency and corporate governance these companies will observe.

One does not know how credible the management is in terms of being able to achieve the guidance it gives, and whether the information it shares can be trusted. For listed companies, analysts have a fair idea based on interactions with the management over the years.

Evaluating an IPO

The process of evaluating an IPO is not very different from that employed for a listed company. Look at the competitive advantages of the business, the quality of its management, and the relative pricing of the stock.

Investors should read the important sections of the prospectus, available on Sebi's website. Sections like "Summary" and "About us" should be read to learn about the company's strengths and ability to fight competition. The section on industry will tell you about the industry structure, growth prospects and competitive intensity.

Look up the financials to learn about past growth rates (revenue and profits), margin profile and the return ratios. Comparing the newcomer with listed peers will give a fair idea of its financial robustness.

The prospectus will also tell you about the management: its background, track record and vision. If you know people in the promoter's hometown, make enquiries. People in the same city tend to know about the reputation of fellow citizens. If the promoter is unscrupulous, he won't be willing to share gains honestly with shareholders.

Compare the new player's valuation with that of its listed peers.Promoters and investment bankers sometimes price the offer expensively. If that is the case, steer clear. You can always buy the stock later when it corrects.

The section on risk factors will tell you if there are legal cases pending against the company. If there are too many cases pending, stay away.

For those who can't or won't do rigorous research, Haldea suggests they look at the level of institutional bidding. If the institutional response is strong, it means that both the company and the price have been validated by institutional investors. Check if private equity investors are exiting the company at the time of the IPO. It indicates that they don't foresee an exciting future for the company, in which case don't bet on it either.

Mistakes to avoid

An IPO is accompanied by a lot of marketing hype. Don't allow it to mar your judgement. The the market is willing to pay a very high valuation for certain sectors and companies in bullish conditions. Avoid getting swayed by the fads.

Do not invest for listing gains

 Listing gains can't be taken for granted in uncertain market conditions. Shah adds that sometimes IPOs get over-subscribed, but by the time listing happens, market sentiment changes and there are no listing gains. In his opinion, investors should have a medium to long-term horizon to earn decent returns.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

Popular posts from this blog

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...
Read more

Good time to invest in Infrastructure Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Good time to invest in infrastructure The Sensex has gained almost 10 per cent from May 15 till date, while the CNX Infrastructure Index has gained almost 17 per cent in the period. The price to earnings ( P/ E) ratio of the BSE Sensex is 18.96; for the CNX Infrastructure Index, it is 24.57. The estimated P/ E for next year is 14.04 for the Sensex. Of the 24 companies that make up the CNX Infrastructure Index, six have a P/ E higher than 20. Does this mean infrastructure is fairly valued? Or, has it run up quite a bit? According to experts, barring stray companies, the infra sector is fairly valued and it is a good time to invest. Even if some companies are facing debt restructuring problems, once interest rates come down and regulatory norms become flexible, they will start giving good re...
Read more

ICICI Prudential Balanced Fund

 ICICI Prudential Balanced Fund scheme seeks to generate long-term capital appreciation and current income by investing in a portfolio that is investing in equities and related securities as well as fixed income and money market securities. The approximate allocation to equity would be in the range of 60-80 per cent with a minimum of 51 per cent, and the approximate debt allocation is 40-49 per cent, with a minimum of 20 per cent. An impressive show in the last couple of years has propelled this fund from a three-star to a four-star rating. The fund has traditionally featured a high equity allocation, hovering at well over 70 per cent, which is higher than the allocations of the peers. But in the last one year, the allocation has been moderated from 78-79 per cent levels to 66-67 per cent of the portfolio. ICICI Prudential Balanced Fund appears to practise some degree of tactical allocation based on market valuations. Within equities, well over two-thirds of the allocation is parked i...
Read more

Mutual Funds: Past Performance is not just everything

Many a times your agent / distributor / relationship manager tries to push you some mutual fund schemes by enticing you with a typical sales pitch…"Sir, this scheme has generated 20% returns in the past one year." And this sales pitch often gets louder when the market conditions have been favourable. Some of the agents / distributors / relationship managers have another unique way of luring you. They say, "Sir / madam this scheme has been awarded the best scheme award in the past by a leading business channel"... And hearing all these sales talks you investors very often get attracted and sign a cheque in favour of the respective scheme.   But please ask yourself do you hear these sales talks when the capital markets turn turbulent? Why is it so that your agent / distributor / relationship manager avoids talking to you during turbulent times of the capital markets and doesn't boast about returns generated by the respective funds or awards being conferred on t...
Read more

PPF lock in may be extended

The Finance Ministry is considering a proposal to extending the minimum lock-in period for withdrawal from PPF from 6 to 8 years. The purpose is to attract long-term funds for infrastructure development. The time limit for maturity of PPF may also be increased from the current 15 years. The limit up to which investors can avail of tax deduction under Section 80C on investment in PPF was hiked from `1 lakh to `1.5 lakh in the previous Budget. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - Invest Online Download Application Forms For further ...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now