Fundamentals of IPO Investments


Previous IPOs were only offered to institutional clients and high net worth investors of brokers. With the advent of online delivery, retail investors and self-directed investors can also seize this opportunity. Therefore, understanding some fundamentals of IPO is an absolute necessity. So let’s get started.

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What is an IPO?

The initial public offering is the distinction when a private company goes public for the first time. Prior to the issuance of the IPO, the company remains limited to its founders, angel investors, venture capitalists and very few others in terms of investing. With the initiation of the IPO, the public becomes a part of the investment. Unlike common stocks, IPOs are issued directly by the company.

A journey towards the initiation of an IPO:

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Why do companies go public?

The floating IPO gives the company both strategic and financial advantages.

Strategic Benefits: When a company goes public, it becomes a public company. There is an improvement in visibility and reputation. The company obtains an essential competitive advantage over its unlisted competitors. The other strategic reason is to offer an exit to existing investors such as venture capital firms or private equity funds. The business can allow old investors to exit and new investors can help the business continue to grow.

Financial Benefits: Growing businesses need capital for their internal operations and business expansion in a variety of formats. When internal sources (which come in the form of retained earnings and funds from friends and family) run out, companies seek solutions through bank loans and private equity. When this too is completed, companies usually go for IPOs. The acquired funds are used to meet current and future needs.

Investing in IPOs: the fundamentals to know

  • Read the IPO prospectus is the starting point.

  • Understanding the business depending on what the company does and its circle of skills.

  • Identify the market opportunity. The size of the opportunity and the company’s ability to seize it, integrated with market share, can make all the difference in terms of growth and returns for shareholders. However, the size of the market provides only estimates.

  • Understand the risks involved. Stock market investment is always subject to a significant number of market risks. Before investing, understand the nature and extent of the risk elements involved. The current market environment, the number of competitors and the quality of the product or service play an essential role in the risk assessment.

  • Take a closer look at the management of the business. Track any changes (upcoming or already happened) as such changes have a significant impact on business performance. Any kind of information about change can create a powerful spark, which investors should and should consider.

  • Evaluate the capital structure (SC). When companies make decisions between IPOs of shares and IPOs of debt, it is called the Capital Structure Decision (CS). CS explains which financial sources are used. He talks about the company’s financial situation and the elements of risk involved. Three ratios, such as debt ratio, net debt ratio, and interest coverage, are used to measure capital structure and differentiate similar IPOs.

  • Take a look at the financial data: The company’s financial data needs to be verified, both in terms of the company’s historical growth and how the company plans to use its available capital. Investors should take careful note of the use of the funds specified in the IPO prospectus.

  • Check the valuation of the company. An overpriced IPO subscription may be declined during registration. Likewise, an undervalued subscription can lead to a drain of a company’s capital. A comparison should be made to assess the fair value of growth potential, business management and competitive advantage among similar listed companies.

  • Some other essentials: An IPO started by a reputable broker involves a solid due diligence check on a company’s prospects. This gives investors an additional comfort cushion in terms of mental security. However, investing in the stock market is always subject to market risk. Thus, the number of advisory or brokerage shares to be issued, the escrow period (i.e. the time required for the new shares to prepare for sale), the performance obstacles applicable to these actions, etc., are to be verified.


Well, selection is an essential criterion for IPO investing. For prudent decision making, investors should assess various factors such as number of shares to sell, price per share, percentage of shares to sell, underwriters, financial accounts, elements of risk and a timetable to be applied by investors. for actions. There are no foolproof rules for selecting IPO securities because no one knows for sure how an IPO firm will perform in the secondary market. As we have discussed, the analysis of the IPO prospectus is very important. As for the strategy, although it offers a solid anchor, success is by no means guaranteed.


ICICI Securities Ltd. (I-Sec). I-Sec’s head office is at ICICI Securities Ltd. – ICICI Center, HT Parekh Marg, Churchgate, Mumbai – 400020, India, Tel. : 022 – 2288 2460, 022 – 2288 2470. Please note that the services related to the IPO are not marketed products and I-Sec acts as a distributor to solicit these products. All disputes regarding the distribution business would not have access to the Exchange Investor Repair Forum or arbitration mechanism. The above content should not be taken as an invitation or persuasion to trade or invest. I-Sec and its affiliates accept no responsibility for any loss or damage of any kind resulting from any action taken on this basis. Investments in the securities market are subject to market risks, carefully read all related documents before investing. The contents mentioned here are for informational and educational purposes only.

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