For the readers of News18, Amarjeet Maurya, AVP of Angel Broking Limited, Amarjeet Maurya, is offering similar tips for starters in IPO. He says that when investors are first introduced to the world of capital markets, they usually encounter some words in the market terminology that may be difficult to understand initially. However, with some efforts and simple research, one can start learning the basics. This makes it easy to invest and also brings clarity in decision.
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First of all, understand the term IPOInitial public offer or Initial Public Offer (IPO), is a term that investors have to understand before investing in the stock market. For companies that have achieved a certain amount of success in their years of operation, launching an IPO and becoming a public limited company are often the best ways to expand and expand their operations. By offering shares, they are able to raise capital that they did not have at that time. Apart from bringing in more liquidity, it allows them to repay the loan and even improve public perception about the company. There are several more important processes involved in turn before an IPO launch, and companies have to complete them to obtain the relevant approvals. Many established companies have achieved impressive gains after launching their IPOs on major market indices like BSE SENSEX, Nasdaq 100, NYSE.
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Relevance of IPOs to companies and measures involved
Companies are co-owned by their founders and investors, who often take the company forward in a credible position. The decision to open the company’s shares to the public through an IPO is based on the trust gained after years of good performance. Apart from the arrival of new funds, there are many reasons, and one of them is the repayment of loan. Many rely on bank loans for enterprise funds, and repaying loans after steady performance is their top priority. Keeping accounting books positive with funds raised through sold shares allows them to invest in their future. For example, in areas such as IT and manufacturing, investing in new technologies and research, hiring experienced candidates or infrastructure advancement are the steps they need to take immediately.
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Company appoints investment banker before IPO
Companies first have to appoint an investment bank for underwriting, as they usually decide what the initial price of a share should be. They evaluate the amount of capital that the company sells to achieve its goals and what portion of the shares need to be sold. Next, companies have to create a Red Herring Prospectus (RHP), a 360-degree profile of the company that clarifies their performance journey, long-term plans, and positioning among other competitors in the industry. After this RHP is submitted to regulatory bodies which takes care of approvals and other launch formalities for the IPO. In the case of India, the Securities and Exchange Board of India (SEBI) takes the responsibility of verifying documents and communicating their acceptance. It is then taken to major market indices like BSE for formality and certification. The IPO is then listed and offers investors the benefit of applying before the allotment of shares.
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Benefits of IPO for investors and necessary steps before investing
Investors need to continuously monitor market developments and invest first to take advantage of the best offer. Typically, share prices are priced at the lowest price, and those who buy faster are more likely to earn higher returns. Once they trade in the secondary market, the share price often increases. To decide whether to invest in an issue or not, it should be seen whether the company whose IPO is coming is well-known or not, or the industry in which it is working is respected in that segment or No. For example, if a firm is known for introducing and innovating new generation products and is recognized as a company that will bring big changes in the economy, then there is a need to take immediate action on this issue because there is a lot of growth in it. There is a possibility. However, there are also instances when well-performing companies fail. To prepare oneself for such scenarios, special efforts need to be made to carefully analyze the RHP before deciding the investment. When you understand the profit and loss associated with the company, it can create the best-possible perception of the possibilities.
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If you do not get immediate returns, keep an eye on the log term
In other cases, companies may not provide immediate returns and instead provide stable growth trajectories over a long period of five to ten years. Then investing in them can prove to be profitable, provided they have a strong and developing record of management. On the other hand, if companies perform well on public property, it gains prestige and respect in the eyes of the people. It is prudent that companies diversify their funding options, such as bank loans, new investors, mergers and acquisitions, and selling a portion of their shares through IPOs. It helps companies plan a better growth strategy and brings together the best minds.