India today has become the most loving equity market in the world. Due to the increasing power of India at the world level and development in each sector, each country looks at India as the best Investment opportunity for the next few decades. In the meantime, Indians have become very interested in Share market trading and investment. Share Market, IPO or Initial Public Offering is not strange for the world and specially for people in India. After 2020 India has seen a sharp up trend in opening of Demat accounts. As per the stats of Government of India, India has registered around 329 lakhs new Demat Accounts just from year 2020 to 2021. This milestone has been achieved as the public of India has gained its knowledge and interest in the Stock Market. In this emerging trend of the equity market, IPO has also become a common terminology for Indians Share Market Investors.
But understanding the IPO complete process is important to gain the knowledge of the first time listing process of a company.
Table of Contents
- What is IPO
- Purpose of IPO
- Listing Process
- Prospectus
- 2023 IPO in India
- IPO on Listing Day
- GMP
Conclusion
What is an IPO?
It stand for Initial Public Offering, where company gets its equity shares listed on RES (Recognized Stock Exchange) i.e. NSE or BSE or both (in India) for the first time. Under this process private companies offer their shares (equity) to public investors to raise the capital from the public.
It converts a private limited company to a public listed entity. IPO allows the private limited equity shares to get traded over recognized stock exchanges among the public.
Purpose of IPO
The main purpose of the IPO is to raise capital from the public which includes retail investors, FII, DII, HNI, employees. But the purpose for which the fund raised will be used varies from company to company.
It can be to expand the operations of the business. OR
To pay the long term debts of the company. OR
To meet the R&D requirement and many others.
As it is difficult for a private company to raise funds/capital from the general public, it chooses to get itself listed. But as it said that “easier said than done” the same applies to the listing process. It involves a long period of time to get a company listed.
Listing Process
- First, a company requires hiring an investment banker.
Investment banker is the bank/financial institution which is involved in the preparation of the launch of an IPO. It acts as an inter-mediator between Company and Market. Investment banks sign the underwriting agreement with the company and prepare all the necessary requirements to raise funds through IPO.
- Once the Investment bank complete its initial process of valuation and documentation , the next involves the approval from SEBI
SEBI or Security Exchange Board of India is the sole authority which manages, controls and operates all the Security transactions in India. It regulates the financial market in India.
- Advertising, once the company gets approval from SEBI, it advertises its public offer to the public through prospectus. Prospectus includes all the details related to the public offering. Price band, dates, financials, investment bank, company and promoter background, purpose, amount raised, quota etc.
- After that, the IPO is open to the general public for a minimum of three days. Public can apply for the IPO through their broker or directly through the stock exchanges website. After the close of the IPO, it takes around 10 days to get the company shares listed on stock exchanges and allows the company shares to trade freely in the secondary market.
Prospectus
Prospectus is an important document which is issued by the company coming with the IPO to share the details of the IPO. Prospectus is the invitation document which is first submitted to the SEBI and after approval from the SEBI issued publicly for the public at large. The document contains detailed information about the company. It includes the company’s profile, background, promoters history, financials , investors, merchant bankers, anchor list. It also gives the details about the IPO timeline, price band, underwriter. It gives the investors a complete guidance about the company operations, financials, promoters, IPO investment, who are the anchors , and merchant bankers. The document is available on the websites of the stock exchanges, SEBI and company’s websites.
2023 an IPO raining year for Indian Equity Market
Indian company has raised Lakhs Crore rupee in the Indian IPO market till Aug 11. Around 80 listings have been done so far in 2023. This shows the potential of the Indian equity market and trend of raising funds through public issues. This significant momentum has not just seen in NSE BSE listing but in the SME market as well.
Some of the upcoming IPOs in Indian Market in Aug 2023
- Aeroflex Industries Limited
- Pyramid Technoplast Limited
- Crop Life Science Limited
- Bondada Engineering Limited
- Shoora Design Limited
IPO Listing Day
Talking about the Indian stock market, an IPO company’s shares get credited in the investors account two days prior to the listing day. On the listing day at 9.45 AM the stock got listed on the stock exchange for which it had taken the approval earlier. For 15 mins it remains as the pre opening of the session. AT 10:00 AM on the listing day the shares get listed and available for publicly traded on the exchanges. The listing of the stock can be in three different types
Premium Listing : Under this the shares of the company got listed on the stock exchange over and above the offered price of the IPO. It is called the listing gain in the market terminology.
Discount Listing: When the IPO shares get listed below its offered IPO price, it is said to be the discount listing. Under this an investor incur a listing loss if he sells on the listing. Many times when the market has major fall or negative sentiments the IPO gets listed on discount. It may be due to the company’s own internal factors.
Flat Listing: When the shares get listed at no premium no discount, or immaterial premium or discount. This type of listing is very rare.
GMP
This is the most common and famous term in the IPO market. GMP stands for Grey Market Premium, Grey Market is the market in which shares are bought or sold in the off market prior to the listing of the share. It is a kind of unofficial market for financial securities, where OTC transactions are done GMP shows the expected return or listing price of the IPO offered shares.
Conclusion
IPO listing takes a long process for a company. As it requires to fulfill many regulatory compliances. Though investment in IPO attracts the investors but still it may be cautious to investing in IPOs. As it does not always give a listing gain. Invest wisely and safely.
(Disclaimer: Details provided here are for your information purpose, we do not recommend to subscribe any IPO through this article)
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