Ultimate Guide To Analyse IPOs: Key Factors Investors Should Check Before Bidding

Indian investors are increasingly becoming interested in riding the initial-public-offering wave, which gives a chance to buy shares in a company ahead of its stock market debut.

Private companies launch their IPOs to raise funds from the primary markets through fresh issue of shares and offer for sale by existing investors and promoters.

Amid the growing capital infusion into equities, many companies have launched their public offers in recent months. As per the data compiled by Chittorgarh.com, more than 300 companies have launched their IPOs so far in 2025. In 2024, nearly 340 IPOs were launched, including 91 mainboard issues.

The companies are launching IPOs to raise funds for growth, expansion or debt repayment. Investors are eager to ride the wave by securing shares early, hoping for a premium listing and continued growth of the company. However, many analysts and market experts have raised concerns over the valuation of a few recent mainboard IPOs.

Many investors are drawn to these IPOs based on their grey market premiums. The GMPs are unofficial indicators of an IPO's demand before it lists on the stock exchange. A high GMP often signals strong investor interest, which can result in a premium listing on the stock debut.

A strong GMP may indicate a potential listing gain, but a company with weak fundamentals is unlikely to sustain the momentum, which can lead to financial losses.

Here are key factors to consider before investing in an IPO:

• The red herring prospectus is a crucial IPO document. It outlines a company’s operations, financials, business model, risks and objectives. This document serves as a comprehensive guide for investors and should be read thoroughly before investment.

• In the RHP, investors should look for factors like the promoter’s background, valuation and purpose of the IPO, among others. These metrics help in understanding company values and future outlook.

• Investors should always check the nature of the IPO. In case of a fresh issue, the company issues new shares to raise capital. Here, the funds go directly to the company for growth, debt repayment, or expansion. In the case of an offer-for-sale, existing shareholders, like promoters and early investors, sell their shares. Investors should carefully review this distinction to understand the risks and growth potential of the company.

• Generally, companies with significant promoter holdings are often preferred by analysts due to their growth prospects. Investors should check pre- and post-IPO promoter holdings to assess the possibility of the company’s future growth.

• Investors should also carefully review the financial statements to make informed decisions. This helps with understanding the company’s profitability, revenue trends, debt levels, cash flow and overall financial health.

• From a long-term investment perspective, investors may also check out broader sectoral trends to understand where the company could be headed in the medium term. This can help the investor with analysing their risk appetite and commitment over the investment duration.

• Another way to analyse IPOs is to check out expert reviews. Many financial services companies issue their own analysis on the outlook of a certain company’s upcoming IPO. This can include potential stock trends, valuation concerns, among others.