Investing in IPO’s has been in trend since decades as people think it’s profitable as the stocks are available for cheap! But in reality this is not the case.
One can and should grade an IPO before investing in it…
What is IPO Grading?
IPO Grading is an independent, reliable and unbiased opinion of a Credit Rating Agency on the fundamentals and the valuations of the company of the new public issues. It includes in-depth analysis of the business model of the company to be rated, his financial history, the industry risk in which it is prevailing, management quality, corporate governance & credit quality.
Scale of IPO Ratings
These Ratings are generally assigned on a 5 pointer scale with higher number indicating strong fundamentals of the company & a low score i.e 1 indicates very poor fundamentals of the company. To give you an overview, Coal India IPO was given 5/5 on the scale of fundamentals, where small IPO like Shilpi IPO get 1/5 rating indicating poor fundamentals and that stock started trading 75% below its issue price within 2 months. Once the rating is assigned to the company, the company in no way can reject the Credit Ratings as per the rules laid down by SEBI. If they feel that the Rating is not justifiable, they have right to approach other Rating Agency. But, it should be publicly known about the grade score awarded by various Rating agencies.
Why it is important?
IPO Grading was introduced by SEBI to make additional information about the company to be listed on the exchange available to the retail investors to help them have a better and informed view about the company before investing. It also helps them in assessing the fair valuation of the company
Where I can see IPO Ratings of Companies?
The companies to be listed on the exchange have to give the IPO Grading in their issue prospectus and the issue advertisement. Plus, you may check the detailed Credit Report of the company on the website of the concerned Credit Rating Agency.