How to cherry pick the coming IPO harvest

A checklist for IPO selection:
Read the prospectus
Do not invest in public issues on non-fundamental grounds. True that an a bridged prospectus is the most investor-unfriendly document, but it is important for you to at least go through the critical disclosures.

The key is promoters
Look at the promoters8217; track record, performance of the company and other group companies, related party transactions and record of shareholder rewards and investor complaints.

Look at offer price
Remember that in the IPO cycle, from the early phase which tends to see under pricing, the market moves on to a phase where IPO starts meaning Its Probably Overpriced to the last stage where it denotes Its Positively Overpriced. Given the past, aggressive pricing may not be far away.

Chase value not price
You buy into a specific company and not into the index. The Sensex may go up but a bad investment shall remain a bad investment.

Use cut-off price option
In book-building issues, investors have to bid the price as opposed to issues where price is pre-fixed by the issuer. Use the cut-off price option, which means that you are prepared to be allotted shares at the final price.

Apply for up to Rs 50,000
A small investor is defined as one whose application amount is up to Rs 50,000 and 25 per cent of an issue is reserved for them. Keep your application within this amount.

Avoid sectoral frenzy
Do not invest in any company just because it is in a 8216;hot8217; sector. Also be careful about companies that have changed their names recently as many would have done this to take advantage of the current flavour.

Do not chase allotments
Ironically, allotments to small investors rise in inverse proportion to the quality of issue. Worse the issue, lesser are the chances of institutional investors applying.

Be wary of over-subscription news
FIIs bids are normally placed in the first few hours and the news of huge over-subscription creates a hype. There have been cases where huge retail subscription was thus mobilised and FIIs subsequently withdrew their bids, dumping the allotments, and as a 8216;favour8217;, in the hands of small investor.

Avoid small issues
There will always be a large number of small issues. Avoid these as most are typically from unknown promoters, with a poor track record and worse a small float.

Avoid issues listing only at regional exchanges
Do not invest in a company proposing listing only at regional exchanges as you shall have no exit route as most of them have been literally lying closed.

Check for lead managers
There are some investment bankers who bring only bad quality issues to the market. Check their track record before you buy.

A last word. Remember the huge vanishing companies scam of the early 90s. Happy IPOing.

Prithvi Haldea is the Managing Director of PRIME Database and can be reached at: ymmexpressindia.com