Initial Public Offering, or IPO, is a procedure through which a privately owned firm transitions into a publicly traded company by offering its shares to the general public. While a small group of shareholders owns a private firm, in the case of a public company, the ownership is divided among a large number of people. The completion of the IPO process is marked by the listing of the company on the stock exchange.
How Does A Company Undertake An IPO?
Before going public, a company appoints an investment bank to conduct the IPO. In the underwriting agreement, the investment bank and the company hash out the IPO’s financial specifics. They thereafter submit the draft red herring prospectus to the Securities and Exchange Board of India (SEBI). SEBI examines the disclosed information and, if confirmed accurate, approves a date for the IPO announcement.
The purpose of a company’s IPO inter alia includes:
- Launching an IPO is an endeavour to raise funds. Every business requires money, whether it’s for growth, improving their operations, investing in better infrastructure, paying back loans, etc.
- Trading stocks publicly results in more liquidity. It makes room for employee equity ownership programmes, such as stock options, and other compensation schemes, which draw in the cream layer’s most talented individuals.
- When a business goes public, it demonstrates that it has achieved sufficient success to have its name displayed on stock exchanges. Any company’s credibility and prestige are enhanced after getting listed on a stock exchange. .
- A publicly traded corporation can always issue more shares in the future and raise more funds as and when needed.
IPO Types
If you are a novice investor, you might find the initial public offering lingo to be a little perplexing. There are two main types of IPOs that companies undertake:
- Fixed Price Offer
In a fixed price offer. The price of the initial public offering is disclosed in advance by the company. Thereafter, the investor commits to paying the whole price when he/she participates in a fixed-price initial public offering.
- Book Building Process
In a book building offering, stock is offered within a 20 percent price band. The floor price and cap price refer to the lower and upper limits of the price range, respectively. Investors place bids for the quantity of shares they want and the amount they are willing to pay. Before announcing a final price, it enables the company to gauge investor interest in the initial public offering before announcing a final price.
A few things to consider before investing
1. If you purchased the stock of a company in an IPO, you are exposed to its financial vulnerabilities. Your investment is directly affected by both its success and failure.
2. A hit IPO may outperform all your other investments. However, a poor-performing IPO may cause you to lose all of your investment. All investments in the stock market are subject to market risk. In the case of an IPO, there is a high level of risk associated with the investment.
3. You should be aware that a company that sells shares to the general public is not obligated to pay back the capital invested by the general public.
4.Before investing in an IPO, consider your prospective risks and rewards. Consult your registered investment advisor before making an investment decision.
List
| Name Of The Company | Issue Size | Date |
| Fincare Small Finance Bank | 1,330 | 2022 |
| Paradeep Phosphates | 1255 | 2022 |
| Sterlite Power | 1250 | 2022 |
| Seven Island Shipping | 600 | 2022 |
| Bajaj Energy | 5450 | 2022 |
| Go Airlines | 3600 | 2022 |
| PharmEasy | 6250 | 2022 |
| Gemini Edibles And Fats | 2500 | 2022 |
| Srei Equipment Finance | NA | 2022 |
| ESAF Small Finance Bank | 998 | 2022 |
| Ola | 7,300 | 2022 |
| Byju’s | ~4500 | 2022 |
| Chemspec Chemicals | 700 | 2022 |
| Shri Bajrang Power And Ispat | 700 | 2022 |
| Delhivery | 7,460 | 2022 |
| SAMHI Hotels | 2000 | 2022 |
| Medi Assist Healthcare Services | 800 | 2022 |
| Inspira Enterprise India | 800 | 2022 |
| Muthoot Microfin | 700 | 2022 |
| Hinduja Leyland Finance | 700 | 2022 |
| VLCC Healthcare | 300+OFS | 2022 |
| Studd Accessories | 450 | 2022 |
| Boat | 2000 | 2022 |
| Emcure Pharmaceuticals | 1100 + OFS | 2022 |
The Performance of Recent IPOs in India
The majority of the IPOs that were listed in 2021 are now in the red. The poor performance of stocks is not limited to recently listed companies. Stock market has been turbulent since the beginning of 2022 because of multiple factors, including Fed tapering, high inflation, restricted money supply, the Russia-Ukraine war etc.
Applying for IPOs
Due to the online application process, it is now simpler to submit an application for an IPO. But before submitting an application, you should educate yourself if you are a novice investor.
The most crucial factor is finance. You will need to make a payment in advance, whether it is a fixed price or a book building IPO, and for that, you need to have liquid funds available with you. However, please note that you will be unable to invest in an IPO without a DEMAT account.
Applying online is a simple process. In case of book building process you need to bid for the requisite number of lots at a price within the price band, typically in most IPOs the bidding closes at the upper end of the price band.
Conclusion
Investment in IPOs is not an optimal investment option for beginners. Beginners can consider investing in mutual funds and take benefit of professional management of money offered by mutual funds. Kuvera is a zero commission mutual fund investment platform, which allows individuals to invest in mutual funds without any brokerage or commission.
Hi, I am Adam Smith, Admin Of TechSketcher, Creative blogger and Digital Marketer.