Are you a stock market enthusiast? Do you find the rare stocks or the upcoming IPOs to invest your money in? Or have you ever come across the word IPO in the newspaper you read or the stock market blogs you follow? Have you ever wondered what is IPO? If so, then here is an article for you where you can read about everything you need to know about an IPO in India.
What is an IPO?
Every business needs capital to get started whether it is someone’s capital or capital raised from the public. When a company raises capital from the general public to establish, extend and run their business, it becomes a public company and IPO is the process of raising this capital from the general public. If you are wondering what is IPO fullform then it is Initial Public Offering. So, as the name suggests, this is the first time when new shares are issued to the public and the public buys them from the primary market. These shares were never traded before in the secondary market.
By offering an IPO, the company gets listed on the stock exchange like the National stock exchange or Bombay stock exchange and then the shares of the company become available for trading in the secondary market as well.
There are three types of IPO which are –
- New Offer: When the company is issuing its shares for the very first time and gets listed on the stock exchange, it is known as a new offer. It helps the company to add capital for its running and expansion.
- Follow-on Offer: This is an IPO issued by a company that is already listed on the stock exchange. This is generally done to increase the capital base. A company needs funds for expansion or and growth, thus follow-on offers are issued in the IPO market.
- Offer-for-sale: This is a little different from the other two types of IPO. Through this IPO process, no additional capital is raised or the share capital remains intact. The change comes in the ownership of the shares. It is the shares that are held by promoters of the company or the anchor investors, offered for sale via the IPO market. The general public can invest in these shares and the ownership changes.
How an IPO works?
In India, SEBI or Securities and Exchange Board of India is responsible for any IPO process and its approval is mandatory. So, when a company opts for an initial public offering, then it needs to register itself with SEBI. It takes a little time to approve or reject the IPO application made by the company. In the meantime, the company can prepare the prospectus and in the prospectus, they need to mention that the approval from SEBI is pending.
If SEBI approves the application after verifying all the documents submitted by the company, the company needs to decide the number of shares it wants to issue and the price of each share. IPO issues are also of two types –
- Fixed Price issue: In this type of issue, the price of the shares offered to the public is fixed by the company before the offer.
- Book Building Issue: In this issue, the company gives a price range and not a fixed price. The IPO buyers need to bid for the shares and accordingly, shares are allotted.
After deciding the type of IPO issue, shares are made public for subscription. Then the buyers subscribe to the issue, and the firm start allotting the share.
After the share allotment via IPO process, the shares get enlisted in the stock exchange – the secondary market for daily trading and the company gets listed as soon as the IPO is offered via the primary market.
Why IPO is offered by the companies?
There are multiple reasons for which a company offers an IPO and the important ones are –
- Firstly, IPO is offered for raising capital from the public. When the company needs to expand its business, it would need capital. For filling the need for capital it offers shares to the public for purchase.
- With IPO, a company gets listed on the stock exchange. It becomes a public company which means it has enough brand value and it is well known by many.
- IPO also helps the company owners to increase their credibility by becoming a public company.
- If a company’s shares are trading well in the secondary market, it gets a liquidity quotient. This, in turn, helps them fuel certain plans for the employees and betterment of the company itself.
- Once a company offers an IPO and gets listed, in the future, it becomes easier for it to raise capital or borrow from the market.
Why you should invest in an IPO in the Share market?
For the stock market enthusiast and pro traders, and even the newbies in the market, IPOs are always exciting, isn’t it? In most cases, the price of the shares in an IPO offering rises immediately after it is listed in the market because of the demand factor, provided the company has a good business plan and expansion model. So, an investor looking for long term investment can invest in an IPO for capital growth. The investors who are looking for regular income in the form of dividends and bonus shares can also invest in IPO if the company seems worthy of providing such benefit to the shareholders. IPO in the share market also allows the investor to become the owner of the company and gets the ownership rights.
Are you eligible to invest in IPO in India?
If we go by the rules of being eligible for an IPO in India, then any individual in India who is an adult and can buy shares offered in an IPO provided he or she has the competence to enter into a legal contract. Few things which are regarded as mandatory for being eligible for the IPO purchase are –
- Pan Card of the investor
- A valid id proof
- Demat account
- Trading account if he or she wants to sell the shares
Here one crucial fact that you need to know is you can only buy the shares in an IPO process when the company allows you the share. When you apply for the subscription of the shares, it doesn’t mean you will get the shares. Thus, once you are allotted the shares, then only it can be termed as an IPO offer.
Things you need to consider about IPO Investment in India
- The first thing that you need to know that finding a potential IPO requires hard work and great analytical and observation skills. So, do not end up buying an IPO that comes up in the newspaper or other medium.
- Before you choose an IPO to invest, you need to be completely aware of the company – what it does, its products and services, locations, business plans, revenue structure, dividend policies, finances, and everything.
- You need to read the prospectus of the company offering the IPO thoroughly. You need to calculate and analyze whether the IPO valuation is appropriate or not.
- It is always advised that you must choose an IPO which is underwritten by well- known and strong brokers. If you find a broker pitching an IPO way too hard, then you must refrain from it or do a thorough study of the IPO before you take any decision.
- It is better to wait until the lock-up period ends. This gives an insight into the future of the company.
Process of IPO investment
After you have done all your research about the IPO and considered all the facts mentioned above, you can now apply for the IPO offer and to do so you have to –
- Get the application form whether online or from the broker, bank branch or the distributor.
- Fill the form and make sure you have a running bank account and also you need to have a Demat account. In the application form, you need to mention the details of these accounts and your details as well.
- Mentioned the amount you want to invest in the IPO.
- If your application is accepted by the IPO issuer, then shares will be allotted to you within ten days approximately.
While IPO investment requires deep research and observation, it is inevitably a great way of wealth accumulation and growth investment. If you want to buy shares in an IPO, make sure you do your preliminary research, IPO valuation, and choose a good broker for the investment. With a proper IPO investment, the amount you invest can increase by any percentage given the company has a bright future ahead.
No IPO found
|Issuer Company||Exchange||Issue Open|
|Yes Bank Ltd FPO||BSE, NSE||Jul 15, 2020|
|Rossari Biotech Ltd IPO||BSE, NSE||Jul 13, 2020|
|Reliance Industries Ltd. (RIL) Rights Issue||BSE, NSE|
|Antony Waste Handling Cell Ltd IPO||BSE, NSE||Mar 4, 2020|
|SBI Cards and Payment Services Ltd IPO||BSE, NSE||Mar 2, 2020|
|ITI Ltd FPO||BSE, NSE||Jan 24, 2020|
|Prince Pipes and Fittings Ltd IPO||BSE, NSE||Dec 18, 2019|
|Ujjivan Small Finance Bank Ltd IPO||BSE, NSE||Dec 2, 2019|
|CSB Bank Limited IPO||BSE, NSE||Nov 22, 2019|
|IRCTC Limited IPO||BSE, NSE||Sep 30, 2019|
|Issuer Company||Exchange||Issue Open|
|Billwin Industries Ltd IPO||BSE SME|
|Nirmitee Robotics India Ltd IPO||BSE SME||Mar 31, 2020|
|DJ Mediaprint & Logistics Ltd IPO||BSE SME||Mar 26, 2020|
|Laxmi Goldorna House Ltd IPO||NSE Emerge||Mar 20, 2020|
|Cospower Engineering Ltd IPO||BSE SME||Mar 17, 2020|
|RO Jewels Ltd IPO||BSE SME||Mar 12, 2020|
|SM Auto Stamping Ltd IPO||BSE SME||Mar 3, 2020|
|ICL Organic Dairy Products Ltd IPO||BSE SME||Jan 31, 2020|
|Chandra Bhagat Pharma Ltd IPO||BSE SME||Jan 31, 2020|
|Tranway Technologies Ltd IPO||BSE SME||Jan 27, 2020|