We agree. John Grisham is more engrossing. But with so many public offers of stock coming your way, do pick up the issue prospectuses, and do them the justice of a proper read (a word that isn't always spelt with S and M at two ends and K and I in the middle). Sure, the activity might inspire more yawns than awe. And in any case, your liability would be limited only to your investment.

Still, read. What a company reveals (or conceals) should matter to you-as a prospective part-owner of the business. Here's what you ought to look out for, in no particular order:

Management

"The most important part of prospectus analysis", according to Gaurang Mehta, Associate VP, IL&FS Investsmart. The promoters' credentials. Their names, familiar or not, their qualifications, experience, performance record down the years-and critically, credibility. Do your verification, even of the big established companies, advises Prithvi Haldea, MD, Prime Database. Check out the company's transactions, its record of shareholder rewards.

Examine the shareholding pattern. Would an offer-effected change in this make a management difference? Be wary of a huge promoter stake, especially if the company has no institutional interest, and of any pre-issue allotment made to promoters at attractive prices (such details are listed in the prospectus). The best time to hold management accountable is before you get in. So look hard.

Financials

What you count on for returns. Regardless of the data available, subject the financial statements to fine scrutiny. "Basically, there are two types of IPOs-one from listed companies, where the background, particulars, past history, financials etcetera are known, and second types, where the background and other details are not known," says Ashish Shah, VP (Primary Markets), Parag Parikh Financial Advisory Services, "Stay away from the latter."

Of course, there are numbers and there are numbers. Some talk, others don't. Some indicate consistency, others expose blips. Does the purported business activity actually account for most revenues? Look at revenue and profit growth carefully. Has there been a sudden quarterly jump leading up to the IPO? Why? What happened the previous year? Has some accounting trick been used? "The financial performance of most companies suddenly improves in the year preceding their issues," cautions Haldea, "However, many would have resorted to window dressing including showing a huge 'other income'." Don't be misled.

Purpose Of The Issue

It must be clear. Why does the company need the money? This must be coherent. Is it a new venture? Working capital, by the way, can be got cheaply from banks. Check if the company or any other group entity has had a previous issue (the prospectus has it) and verify whether the proceeds were used as per the plan then. The prospectus lists such details under 'Promise Versus Performance'. There have been sordid cases of public money collected for a 'software services cell' ending up in treasury operations-to play the market. Demand clarity of intent.

Lead Managers

They have a rub-off effect. Well-known investment banks are expected to be circumspect about the quality of the issues they manage, though this is more a brand-based expectation than a statutory one. As J. Niranjan, Senior VP (Investment Banking), I-sec, puts it, "The more established investment bankers will not bring poor and doubtful IPOs to the market." But then, the country's five top lead managers tend to bag four-fifths of the issue business, so this criterion serves only as a basic filter at best. This may be so, but Jagdish Master, Director, Enam Financial Consultants, makes the reassuring claim that "lead managers have become more cautious while accepting mandates now than before". So the rub-off is real.

Price

Deserves special attention during a boom. How much a stock is worth paying for is a matter of valuation. The lazy way out is to measure the issue price (or your bid) against a benchmark such as a rival stock in the same business. When markets are booming, though, this could lead you to overpay. Beware of the shady 'casino craze' offer-makers who're greedy for any cash up for grabs. As they say, a good company at a high price is a bad investment-unless you're a diehard believer in the 'greater fool' theory.

"Do not expect even PSUs to underprice their issues," says Haldea, "they too seem to be in the race for maximising returns." Check for share-splits prior to the issue (to make the offer price look low). Be conscious of price versus value.

Litigations

These do matter. Legal entanglements are listed in the prospectus. You could get a legal opinion on the better-known cases. Even otherwise, it pays to assess the management's respect for rules and regulations. Stock scam-tainted companies are avoidable. "Companies that have not been compliant with the laws of the land reflect a worrisome mindset, " says Haldea, "If you find these of a material nature, avoid." Get law-savvy.

Other Risk Factors

The proverbial 'fine print'. Though some of these are not spelt out in as many words, a thoughtful read would alert you to the possible downsides. Here's a sample of what you could encounter: 'The Company doesn't have any statutory clearances and approvals for implementing the proposed project, whereas this kind of project requires various statutory clearances and approvals that approximately take more than a year for completion. Further, any delay or failure in obtaining the necessary regulatory approvals for the commercial launch of these products may adversely affect the future profitability of the Company.' Sounds benign? Or worrisome? It hardly sounds earth-cratering, given the scarier scenarios you may have pictured or read about. Then again, such total dependence... anyhow, it's your call.

But remember, human behavioural studies have shown time and again that people tend to err on the side of optimism. In making mental probability estimates of particularly devastating outcomes, they almost always miscalculate, and grossly too. Maintain your balance of reason.