Do’s and Don’ts in Primary market dealings

Do’s and Don’ts in Primary market dealings : Primary market is a part of the capital market where issue of new securities takes place. It is the place where investors buy securities directly from the offering company before they start getting traded on secondary market i.e. stock exchanges. As an investor, while going for buying any new securities in the primary market, one should be cautious enough to make informed decisions with the best available information in the market. In this post, we share with you few Do’s and Don’ts that one should pay attention to in primary market.

Do’s in Primary market dealings:

  • Read the red herring/Abridged prospectus thoroughly:
    • Red herring prospectus contains the detailed information of the company’s business operations and the detailed comprehension of the offer being made. It also consists of the information such as promoter’s background, history of the company and its operations, financial statements, possible risk factors associated with the company’s long term prospects, IPO rating if carried out and litigations that are outstanding against the company. All this information should be carefully read before one makes a decision to apply for the shares of any company.
    • If the investors, after reading the red herring prospectus finds any inaccuracies or incomplete information then he can raise the same with the merchant banker / the officers named in the document.
    • Read the instructions carefully before making your application for the securities.
  • Consider the objective of your investment before choosing to invest in any company. Choice of investments may vary depending up on the fact whether you are looking for a capital appreciation or for a monthly receipt of coupon interest etc.
  • If your demat account has not yet been credited with the shares even after successful allotment within the due period, lodge a complaint with the compliance team of the issuer.
  • Check the registration of the brokers/sub brokers before getting to deal with them.
  • Check the reputation and back ground of the underwriters involved with the IPO.


  • Don’t get carried away by the buzz created on the print and electronic media about the promoters/founders. Don’t forget the fact that the fundamentals of the company are more important than the promoter’s public image.
  • Don’t invest just based on the prevailing market conditions that might be favorable to the company you are choosing to invest in. Don’t forget to check the future prospects of the company’s business operations.
    • Eg: Had Paytm come with an IPO soon after demonetization, the issue would have been definitely successful. This would have been an exaggeration given the momentum in which the Indian economy was post Nov 2016. But the true picture of such IPOs is known only when the investors are well informed.
  • Don’t blindly apply for the securities if any government sponsored IPO come up. Pay the same attention as in the case of any other IPO. One may argue that the government guarantees the capital you invest there, but a fundamentally weaker company will definitely result in losses once it loses its position no matter what the government may do.
  • Don’t invest with an expectation of realizing high returns upon listing.
  • Don’t buy in the promises of the promoters that may guarantee you unrealistic gains and windfall profits.