Is Ipo Rating a Good Measure for Investment Decision?

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Is IPO rating a good measure for investment decision?
-- Ankur Maheshwari

New issues of stocks that are sold for the first time are called Initial Public Offerings (IPOs). These issues are marketed and sold through underwriters (brokerage firms). In general, IPOs have provided investors with a wild ride with regard to returns. Onelife Capital IPO, listed on 17th October has provided 80% return within a week. Many investors have also been burned in the IPO market. Taksheel Solutions Ltd IPO was brought to market on 19th October at an issue price of Rs. 150 per share. One week later the stock was trading at 27.90 Rs. This is 82% loss over a single week period. Historically the IPOs have converted thousands into crores and the opposite is also equally true. This means that investors who are intent on investing in IPOs should take precautions to lower the risks of loss.

IPO Rating is among the few popular inputs investors can use before applying to an IPO. IPO Rating is designed to provide investors an independent and reliable assessment of the fundamentals of IPO Issuer Companies. SEBI approved rating agencies including CRISIL, CARE, FITCH and ICRA provide the IPO ratings in India after considering company specific and external factors for the issuing company. Company specific factors include the competence of the management, promoters’ profile, growth prospects, operating efficiency, liquidity and financial flexibility, asset quality, accounting quality, profitability and hedged risks. External factors include the industry and business environment for the company. It does not take into account the issue price. Therefore, investors need to make an independent judgement on the subscription price. IPO ratings are assigned on a scale of 1 to 5 with rating 1 signifying poor fundamentals and rating 5 signifying very good fundamentals. Most of the IPOs in the Indian markets have been rated among grade 2, 3 or 4.

To analyze if there is any link between the IPO...
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