With the IPO season heating up, retail investors are once again looking at fresh opportunities to participate in the primary markets. A Current IPO often carries a sense of excitement, thanks to high media coverage, investor buzz, and the potential for listing gains. But unlike a Listed IPO, where past price performance and trading volumes offer insights, a new IPO leaves investors relying mostly on the company’s fundamentals and future prospects.
To make smart decisions, retail investors should follow a well-structured checklist before applying. Here’s a comprehensive guide:
✅ 1. Understand the Business Model
Before anything else, ensure you fully understand what the company does. Is it operating in a high-growth sector? Does it have a sustainable competitive advantage or unique value proposition? If the business model is too complex or niche, it might not be suitable for all investors.
✅ 2. Read the DRHP Carefully
The Draft Red Herring Prospectus (DRHP) contains all vital information—financials, risk factors, promoter details, and how the IPO proceeds will be used. Don’t skip this step. Look for red flags like heavy dependence on a single client or sector, pending litigations, or declining profits.
✅ 3. Evaluate the Financials
Check revenue, EBITDA, net profit trends, and debt levels over the past few years. A company preparing for an IPO should ideally show consistent growth and stable or improving margins. Also look at ratios like Return on Equity (ROE), Earnings Per Share (EPS), and Debt-to-Equity (D/E) to gauge financial health.
✅ 4. Assess the Valuation
Is the IPO reasonably priced compared to listed peers? If the Price-to-Earnings (P/E) or Price-to-Book (P/B) ratios are significantly higher than industry averages, dig deeper. A high valuation can be justified in some cases—but only if there’s strong growth potential.
✅ 5. Check Promoter and Management Background
Strong, experienced promoters and professional management teams usually signal long-term vision and credibility. Look into their track record in scaling businesses, handling downturns, and maintaining transparency with investors.
✅ 6. Review Anchor Investor Participation
If large mutual funds, institutional investors, or foreign investors participate in the anchor book, it can boost your confidence in the offering. However, use this as a secondary filter—not a substitute for due diligence.
✅ 7. Watch Market Conditions
Broader market sentiment can influence listing performance. Even fundamentally strong IPOs may struggle during volatile periods. Timing matters, especially if you’re eyeing listing gains.
✅ 8. Have a Clear Objective
Are you applying for listing gains or long-term wealth creation? Your decision should align with your financial goals. If you’re not confident in the company’s fundamentals, it’s better to skip and wait for it to become a Listed IPO, where more data is available.
Final Word
A Current IPO may offer great potential—but only if approached with discipline and research. As a retail investor, your best tool is information. Use this checklist before committing your capital. Remember, not every IPO needs your money, but your money deserves the right IPO.