2021 was a beneficial year for primary markets. Over 60 companies went public with their IPOs, and approximately 1 million investors participated in this IPO rally, raising more than 1 Lakh Crore.
One97 Communications (PAYTM) was the largest IPO, with Rs 18,300 crore. 2022 also lists upcoming IPOs, including LIC, Delhivery, and Adani Wilmar. Someare doing well, and some are not, mainly the LIC IPO, which is listed at over an 8% discount and has already hit all-time lows multiple times.
The performance of the other much-awaited IPOs, such as Zomato and Paytm, has also been disappointing after their IPOs. Even though previous IPOs have had ups and downs, there are many exciting offerings in 2022 and 2023 that look promising.
But before investing in any such initial public offering, an investor should know about the company's business model. Otherwise, they would be pushed into a blunder pit of mistakes that investors make in the stock market, resulting in increasing losses.
An investor or trader must consider investment goals and horizons to grab the best opportunities in the stock exchange market. NIWS (National Institute of Wall Street) offers a comprehensive list of stock market classes Indorefrom SEBI, NSE, BSE, and other market modules. Our experts train investors with advanced data analysis and research techniques, facilitating smart investment strategies for maximum profits.
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In IPO, aka initial public offering refers to the process in which a private company offer their shares to the public in a new stock issuance initially. An IPO is a part of the primary market that allows a company obtains equity capital from public investors from both preference and equity shares.
A company's transition from private to the public involves a share premium for current private investors, allowing them to perceive their entire investment gains. In the meantime, it also lets public investors partake in the offering.
According to the Primary Market Regulations, bids for the shares are registered online after a company introduces an IPO to the common people. All the bids are then analyzed through an online method, and the bids that were erroneously submitted will be considered null and terminated from the total number of bids. A conclusive number of approved bids for the IPO is now available.
The situation of the company may fall among these two cases:
A complete allotment of shares will occur if the number of bids made by participants is lower than or equal to the number of issued shares. Therefore, everyone who has applied will be allotted shares.
When the number of bids submitted by applicants exceeds the number of shares offered, the allocation process needs to be planned more carefully. For every individual who applies, SEBI, or the Securities and Exchange Board of India, has mandated that every applicant should get at least one lot allocated.
Let's understand case 2 with an example:
Suppose that there are 20 lakh shares are issued in the market, and the minimum lot size is 100. Then the maximum number of applicants who will get at least one lot is = 20 lakh/100 = 20,000
Thus, 20000 people can get one lot allocated.
There are two types of the allotment procedure for case 2:
1. Small Oversubscription
After distributing the minimum lot among all the participants, the remaining shares will be allocated proportionally among investors who have bid for more than one lot.
2. Large Oversubscription
When there is such an oversubscription when it is impossible even to allot one share to every applicant, allotment occurs via a lucky draw. The random draw process is computerized to avoid any partiality. Therefore, the applicants whose names are not drawn in the lucky draw during large oversubscription do not get any shares assigned.
The reasons why you didn't get any shares allocated could be:
1. Due to an inaccurate Demat account number, wrong PAN number, or numerous applications for the IPO, your bid was deemed invalid.
2. Because of high oversubscription, your name didn't get picked in the lucky draw
Making a company public has many benefits. Some of those are:
The main motive for listing the company is to raise funds. A company needs a lot of funds for raising and expanding, so they can issue fresh share capital to achieve that.
An influx of substantial capital from the market occurs when the shares are subscribed, allowing the corporation to fulfill a significant part of its financial requirements. They can use funds for anything they want, from reducing the company's debt to expanding business.
Listing the company is an excellent solution if stakeholders (like the private investors or promoters of the company) wish to dissolve their stake partly or entirely. Via an Offer for Sale (OFS), the company's existing investors can offer their shares to the public and sell off shares to the public. Thus, it can act as an exit route for existing shareholders.
A listed company's shares can be readily traded, thus motivating investors to own a stake in the corporation. Investors can quickly market and liquidate the shares. Listing on the stock exchange lets the company's shares engage in the exchange's turmoil of buying and selling.
A listed company must comply with the SEBI's rules and regulations, keeping close control over the company's financial disclosures, corporate practices, and trading activities, leaving little room for malpractice or fraud. It increases the conviction of the corporation's shareholders in its operations and administration.
As mentioned earlier, the main reason behind listing is raising funds. They can use that fund to acquire smaller companies in the same industry to advance their growth. The massive funding volume also expands the company, directly impacting its profitability.
A listed company can offer ESOPs (Employee Stock Ownership Plans), which can help a company attract talented employees. It decreases an employee's monetary compensation and retention cost and advances the chances of recruiting a proper fit.
Listing creates brand awareness. Many people get to know about companies when their IPOs are out. Listing can create a public image for the firm and increase its market stature.
As a result of listing securities, companies become more competitive as their share prices reflect market perceptions. The company's shares would be in demand if it performed well, thus boosting its prices, raising its market capitalization, and helping it become a reputable company.
Issuing an IPO has two primary parts— the pre-marketing phase and the initial public offering. For an IPO, a company will solicit private bids from underwriters, or it can make a public statement to develop interest.
The company chooses the underwriters that lead the IPO process. For managing different parts of the IPO process, a company may select several underwriters to work collaboratively. As part of the IPO process, the underwriters assist with due diligence, document preparation, filing, marketing, and issuing the shares.
There is a bid presentation by underwriters that discusses their services, the most suitable type of security to issue, the offering price, the number of shares, and the timeline for the IPO.
The firm finalizes the underwriters they like, and orderly accepts to underwrite terms via an underwriting agreement.
Companies form an IPO team that comprises underwriters, lawyers, certified public accountants (CPAs), and Securities and Exchange Commission (SEC) experts.
The IPO team compiles the data regarding the company for required documentation. The introductory filing document for the IPO is the S-1 Registration Statement which contains preliminary details about the anticipated filing date. Continuous revisions are made to the prospectus.
They create marketing materials to pre-market the new stock issuance. Underwriters can revise their financial analysis in the course of the marketing process. Corporations take the essential steps to comply with particular requirements of the public share offering.
Set up a board of directors to ensure quarterly financial and accounting reporting is auditable.
The company's shares are issued on its initial public offering date. Upon issuance to stockholders, the funds are acquired in cash and documented as equity of the shareholders on the balance sheet. The corporation's shareholders' equity value per share determines the balance sheet share value.
A few post-IPO provisions may be implemented. There may be a timeframe in which underwriters can buy more shares after the initial public offering (IPO). Meanwhile, a quiet period may apply to confident investors.
There are the following benefits of investing in an IPO:
IPO can be your entry gate to a company with high growth prospects. It can yield high profits in a short period and is also a good investment opportunity for the long run. Investing in a company that could shake the market and raises profits will give you great returns on your investments.
Investing in an IPO means you are investing in equity which has the potential to give huge returns in the long run. It could be your savings for your future which you could use for anything you want.
The IPO order document clearly states the rate per security issued. The information is available to more prominent investors, which would change post-IPO. After the IPO, the share prices would hinge on fluctuating market rates and the stockbroker's best rate.
IPO prices are often the lowest when investing in a start-up with tremendous growth potential because the company might offer a low rate. Missing the IPO window might make investing in that promising company difficult since the stock price may rise quickly.
IPOs are a great way to invest for an extended and short period. It could generate good profits if you invest in a company with the prospect of growth. IPOs are beneficial for investors as well as for companies. They help the company to raise funds for growth and for investors to make profits from their growth.
But investing in IPO demands extensive research, which helps investors know the company's model, base, working, and financial reports. Technical and Fundamental analysis would facilitate the investigation. Connect with our experts now to learn more about courses from the best stock market institute in Indore for more details.
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