How to Select the Best IPOs A Complete Guide for Smart Investors

Applying for every IPO is not a strategy — it’s just luck.
Successful investors know how to pick the best IPOs that deliver:

• High listing gains

• Strong long-term returns

• Sustainable company growth

• Bonus and dividend potential

• Lower risk

But how can you identify which IPO is worth investing in and which one is just hype?

This blog gives you a complete, beginner-friendly guide to selecting the best IPOs using clear analysis, simple checklists, and proven methods.

1. Understand What Makes an IPO “Good”

A good IPO has:
✔ Strong fundamentals
✔ Profitable business model
✔ Good valuation
✔ Experienced management
✔ Strong sector demand
✔ Clear growth plans
✔ Positive credit rating

Your goal is to invest in IPOs that offer both listing gains AND long-term wealth.

2. Step-by-Step Guide to Selecting the Best IPOs

Let’s break down the analysis into simple steps.

Step 1: Analyze the Company Background

Before investing, understand:

• When was the company established?

• How long has it operated?

• Is it part of a bigger parent group?

• Does it have a track record of success?

Older, well-established companies = lower risk.
New companies without history = more research needed.

Step 2: Study the Industry and Sector Strength

Some industries naturally perform better.

Strong sectors include:

• Hydropower

• Insurance

• Banking

• Manufacturing

• Technology

• Finance

• Hospitality (with growth potential)

If the sector is growing, the IPO has a higher chance of success.

Step 3: Evaluate Financial Health (Very Important)

Look for consistency, not one-time performance.

Check:

✔ Revenue Growth

Is income increasing every year?

✔ Net Profit Growth

A growing profit line = strong business.

✔ Low or Manageable Debt

Debt-heavy companies are riskier.

✔ Healthy Cash Flow

Indicates real financial strength.

✔ Net Worth Growth

Shows stability and long-term potential.

Financially strong companies usually perform well after listing.

Step 4: Check the Credit Rating (ICRA Rating)

Every IPO has a credit rating from:

• ICRA Nepal

• CARE Ratings

• CRNL

Ratings Meaning:

• ICRA A or above → Strong IPO

• ICRA BBB → Average

• ICRA BB or below → Weak / Risky

Credit rating reflects the company’s ability to repay debt and manage operations.

Step 5: Understand the Use of IPO Funds

Where will the money go?

Good signs:

✔ Capacity expansion
✔ New projects
✔ Debt repayment
✔ Business growth

Red flags:

❌ Covering losses
❌ Paying old debts only
❌ No expansion plans
❌ Weak financial future

If IPO funds will grow the company, it is a good sign.

Step 6: Analyze Management and Leadership

A company is only as strong as its management team.

Check:

• Experience

• Past performance

• Corporate governance

• Board composition

• Transparency

Strong leadership = better future performance.

Step 7: Check Promoter Shareholding

Higher promoter holding = company confidence.

Example:

• Promoters hold 70% → strong trust

• Promoters hold only 30% → caution

Promoters keeping a high stake shows long-term commitment.

Step 8: Study Project Pipeline and Future Plans

Look for:
✔ New projects (especially hydropower)
✔ Expansion roadmap
✔ New products/services
✔ Technological upgrades
✔ Market expansion

A company with a solid future plan is more likely to grow.

Step 9: Understand the Valuation

Valuation determines if the IPO is cheap or expensive.

Key indicators:

• Price-to-Earnings (PE) ratio

• Price-to-Book Value (PBV)

• Peer comparison

• Overall market sentiment

Simple rule:

• Low to fair valuation → high chance of listing gain + long-term success

• Overpriced IPO → risky

Always compare IPO price with similar listed companies.

Step 10: Review the Prospectus (Simplified)

A prospectus contains everything about the IPO.
Focus on:

• Financial statements

• Promoter details

• Risk factors

• Business model

• Project details

• Auditor’s report

• Credit rating

You do NOT have to read all 200 pages — just the key sections.

3. Quick IPO Selection Checklist (Super Simple)

You can use this checklist to decide quickly:

✔ Company older than 5+ years

✔ Strong sector (hydropower, insurance, finance, manufacturing)

✔ Consistent revenue & profit

✔ Low or manageable debt

✔ Good credit rating (ICRA A or above)

✔ Clear expansion plans

✔ Strong management team

✔ Fair valuation (Rs. 100 base price ideal)

✔ Promoter holding high

✔ No major legal issues

If an IPO passes 7 out of 10 points, it is good to apply.

4. Which IPOs Are Best for Listing Gains?

Choose IPOs with:
✔ Strong subscription (20–50 lakh applicants)
✔ Popular sector
✔ Low base price
✔ High market excitement
✔ Good credit rating
✔ Good financials

These IPOs show explosive demand on listing day.

5. Which IPOs Are Best for Long-Term Gains?

Choose IPOs with:
✔ Strong fundamentals
✔ Solid balance sheet
✔ Good future plans
✔ Consistent profit growth
✔ Low debt
✔ Strong management

These IPOs grow 5x–20x over years.

6. Red Flags: IPOs You Should Avoid

Avoid IPOs if you see:
❌ Weak financials
❌ Loss-making company
❌ Low credit rating
❌ Overpriced shares
❌ No clear business model
❌ Too much hype but no fundamentals
❌ High debt ratio
❌ Poor management reputation

Such IPOs often fall after listing.

7. Should You Apply for All IPOs?

✔ Yes — if you want listing gains
✔ You risk nothing by applying
✔ You only need Rs. 1,000 per application
✔ Allotment is based on luck

But for long-term investment, choose quality, not quantity.

8. Smart Strategy for IPO Investors

Here’s the best formula:

✔ Apply for all IPOs

(Because low-risk, low-cost entry)

✔ Sell weak IPOs on listing

(Quick profit)

✔ Hold fundamentally strong IPOs long-term

(Wealth building)

✔ Build a diversified IPO-based portfolio

(Safe + profitable)

This strategy gives you the best of both worlds.

Conclusion How to Select the Best IPOs

Choosing the right IPO requires:

• Basic analysis

• Sector understanding

• Evaluating fundamentals

• Checking credit rating

• Identifying future growth

The best IPOs are those that combine:
✔ Listing gain potential
✔ Strong long-term fundamentals
✔ Good valuation
✔ Strong management
✔ Stable business model

If you analyze smartly, IPOs become one of the safest and most profitable ways to grow your wealth — especially in Nepal.