Want to invest in IPOs smartly? Learn how to analyse an IPO using 7 simple steps, avoid losses, and boost your chances of listing gains.
Initial public offerings (IPOs) create tremendous excitement among retail investors. Every investor wants to earn good listing gains or wants to invest in that company thinking that its stock will become a multibagger stock in the coming time. But applying for that IPO without the right information can be like buying a second-hand car without checking the engine – which can be very risky and cost you a lot in the future.
In the year 2024 to 2025, some new IPOs came in the stock market in which many people doubled their money and many people had to suffer huge losses like:
- Waaree Energies Ltd. 112.19%
- KRN Heat Exchanger & Refrigeration Ltd. 294.32%
- Premier Energies Ltd.142.28%
- Interarch Building Products Ltd.158.53%
- Le Travenues Technology Ltd. 138.44%
- Bharti Hexacom Ltd. 218.04%
- Jyoti CNC Automation Ltd. 211.28%
- Prostarm Info Systems Ltd. 112.1%
- Quality Power Electrical Equipments Ltd.104.42%
Loss Making IPO 2024 to 2025:
- Ola Electric Mobility Ltd.-43.32%
- Arisinfra Solutions Ltd. -34.23%
- Suraksha Diagnostic Ltd.-30.45%
- Deepak Builders & Engineers India Ltd.-31.5%
- Western Carriers (India) Ltd.-33.43%
- Shree Tirupati Balajee Agro Trading Co.Ltd.-44.46%
- Saraswati Saree Depot Ltd.-39.23%
- Akme Fintrade (India) Ltd.-38.33%
- Popular Vehicles & Services Ltd.-55.53%
- R K SWAMY Ltd.-39.84%
If you are a new investor and you are thinking that I can earn good money from the stock market by investing in new IPOs, then this guide can prove to be a boon for you.
What is an IPO?
In the stock market, an IPO is a process by which a private company becomes public by issuing its shares to investors for the first time by getting listed on the NSE or BSE. This gives the company an easy and simple opportunity to raise money for itself and investors an opportunity to become shareholders in a potentially high-growth business.
There are Two Main Types of IPOs:
- Book Building IPO: In this, two price bands are given, investors can buy that stock by bidding according to their own.
- Fixed Price Band IPO: In this, a price is fixed by the company itself, you get shares above that price.
Why is IPO analysis important?
You don’t have to do it for every new IPO. While some companies may look very attractive, for example Ola Electric Mobility Ltd. -43.32% has already halved its shareholders’ money. Before investing, you also need to look at the hidden risks of the company, such as the demand for the product in the market, unstable profits, high debt, or inflated valuations. Proper IPO analysis helps you:
- Avoid investing in overhyped and poor quality IPOs
- Focus on a company with strong fundamentals
- Make a well-thought-out decision about IPO investment
Key Factors to Analyse in An IPO
1. Company Financials:
Review the financial data over the last 3 years:
- Revenue & Profit Trends
- EBITDA Margin and PAT Margin
- Debt Levels and Net Worth
- Return on Net Worth (RoNW)
Consistent growth and profitability are green flags.
2. Valuation Metrics:
Understand how the IPO is priced:
- Earnings Per Share (EPS)
- Price to Earnings (P/E) Ratio
- Comparison with Listed Peers
If the IPO is priced Significantly Higher Than Peers, it may be Overvalued.
3. Business Model & Industry:
- Is the Company business Model scalable and future ready?
- Is the industry growing growing sector?
- Does the Company have a competitive edge (like tech, brand, or market share)?
4. Use of IPO Proceeds:
Check if the Funds Raised are Used for Productive Purposes Like Expansion, R&D, or Debt Repayment & not just to offer an exit to Company Promoters.
How to Read the DRHP Important Point
The Draft Red Herring Prospectus (DRHP) is the official Document Filed with SEBI Before the Company IPO. Focus on:
- Company Overview
- Financial Statements
- Promoter Background
- Risk Factors
- Objects of the Issue
You don’t have to read all 400 pages, just the financial summary and Management Discussion will give good insight.
Grey Market Premium (GMP Price) – What it indicates
IPO GMP Price is the premium at which a new company’s IPO trades unofficially in the black market before its listing. It Reflects The Demand for that IPO in The Stock market.
You can check the latest updated GMP price leaves for all upcoming IPOs with the help of this IPO GMP tracker. It gives you a rough or actual estimate of the listing gain of that IPO.
Note: GMP price is an Unofficial method and can be manipulated at any time. You can use it as only one of the many indicators.
Check Subscription Status
Whenever a new IPO opens, you need to keep an eye on its subscription figures:
If QIBs (Qualified Institutional Buyers) and NIIs (Non-Institutional Investors) are increasing their subscription numbers in that IPO, it means that the IPO can become a super hit.
A moderate Retail subscription is also good, but avoid oversubscription driven by hype without fundamentals, it will reduce the risk.
Red flags to watch out for in an IPO
Be cautious if the following conditions exist:
- The company has negative profit or inconsistent earnings. Avoid taking the risk.
- If the IPO is purely an offer for sale (OFS). If the company’s promoters are selling their stake. Avoid such issues.
- Be cautious if the IPO’s valuation is unreasonably high.
- industry or sector facing recession or pressure (e.g., real estate, metals, etc.)
Final Checklist Before You Apply
- Company Strong Revenue and Profit Growth
- Reasonable Valuations Compared to Peers Company
- Check IPO GMP and Subscription Data Read For Support Listing Confidence
- Funds Raised for Real Business Growth Plan not for offer for Sale
- No Major Red Flags in DRHP or Company Promoter History
Conclusion
Investing in new IPOs can be profitable but only if you research the company thoroughly. Do not blindly trust any social media platform tips or grey market rumours.
Analyse the company’s financials, business model, valuations and sentiment indicators like GMP price.
Before deciding to invest in an IPO, make sure to use a reliable resource like the IPO GMP Tracker on Moneymintidea to monitor real-time GMP data.
With proper analysis, you will cut through the hype and make wise investment decisions not just in IPOs, but in your long-term financial journey as well.
