IPO checklist for investors :: Business Line,

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When it comes to IPOs, the Indian regulator follows a ‘disclosure based system' wherein the promoters are legally bound to make all disclosures that can affect the investment decision in the offer document. Investors evaluate the offer based solely on this document. It is the duty of the lead manager to verify these details and ensure that no false or misleading statements are made by promoters or no vital information is suppressed.

Action taken by SEBI in the last two months could deter promoters and investment bankers from indulging in malpractices. But you, as an investor, also need to do some checks to ensure that you are not taken for a ride.

Do not apply in an IPO with the intention of making a quick buck with the listing gains. These gains are anyway going to disappear once the proposed circuit bands for public issues come into force. It is best to invest only if you think the valuation is good given the business and growth prospects of the company.

Do take a close look at the grading of the issue since IPO grading is now mandatory. It will tell you where the company stands on a scale of 1 to 5 on fundamental parameters. The rating rationale given in the prospectus will also give you an independent opinion about the company's business and prospects.

The investment banker's track record that will be displayed on its web site will tell you the kind of issues they were involved with in the recent past and the performance of these issues. This will give a fair idea about the company that the lead managers keep and whether it is a safe one.

Take a closer look at the promoters and directors of the company. Presence of institutions or their nominees in the Board of Directors would give some comfort. Litigations pending against promoters and the company listed in the prospectus needs to be perused to check the kind of skirmishes they have been in to.

If you continue to be in a quandary despite all the information in the offer document, then do not invest in the issue. The stock can be picked up in the secondary market after you have tracked the company's performance for a couple of years. The market provides plenty of buying opportunities.