All about IPOs in India

TomorrowMakers ™

All about IPOs in India

22 March 2017
Investing in IPOs can bring financial success in the future. But before doing so, here are some things you should know.
 
 

You may have heard about the bumper listing of Avenue Supermarket—the company that runs D-Mart stores around the country. Its stock price jumped 102% on the first day after getting listed. Shares of Avenue Supermarket were trading at over Rs. 600, despite the issue price being just Rs. 299.This is just one of the many Initial Public Offerings (IPOs) in the country.

Here is all you need to know about IPOs in India:

What are IPOs?

Every company needs money to grow and expand. They do this by borrowing or by issuing shares. If the company decides to opt for the second route of issuing shares, it must invite public investors to buy its shares. This is its first public invitation in the stock market, and is called the Initial Public Offering (IPO).

When you buy such shares, you get ownership in the company, proportionate to the value of your shares. These shares then get listed on the stock exchange. The stock exchange is where you can sell your existing shares in the company or buy more.

Related: Investment options- thinking beyond the obvious

How do IPOs work?

The Securities and Exchange Board of India (SEBI) regulates the entire IPO process. A company intending to issue shares through IPOs first registers with SEBI.

SEBI scrutinises the documents submitted, and only then approves it. While awaiting the approval, the company prepares its prospectus, in which it mentions that SEBI’s approval is pending.

Once approved, the company decides two things; it fixes the price of the share and the number of shares it plans to issue. There are two types of IPO issues: fixed price and book building. In the former, the company decides the price of the share in advance. In the latter, the company gives you a range of prices. You then need to bid for shares within this range.

 

After deciding on the type of issue, the company makes the shares available to the public. Investors then submit applications showcasing their interest in buying the shares. Once the company gets subscriptions from the public, it proceeds to allot the shares.

The last step in this process involves listing it on the stock market. After the shares are issued to investors in the primary market, they get listed in the secondary market. Trade in these shares, happens daily.

How to invest in an IPO

Before jumping into the dynamic market, you must do the groundwork. The prospectus issued by the company is an invitation to the public, stating financial details. These include the money that the company intends to raise and the type of shares. The prospectus also outlines how the company plans to use the IPO money, and expand its business. This helps you make an informed decision.

Process to buy shares

  • Get a physical application form from a broker, distributor, or bank branch. Online applications are also available
  • Fill up the form with various details like personal, bank and demat account details
  • It also asks for your total investment amount
  • Share allotments happen within 10 days from the closing date of the offer.

Related: Investing in Equities- Identifying the Best Plan for Your Financial Goals

The reward

When you subscribe to such shares, you become one of the first shareholders of the company. So, you often get shares at lower prices. If the company flourishes, its share price rises. You, thus, could get a good deal.

The risk

Risk is an integral part of stock markets. Your returns depend on the growth potential of the company. If the company fails to grow over time, you might lose your money. Unlisted companies do not have to publish their financial reports and statements, so you cannot check their past performance while subscribing to their shares. Of course, the prospectus provides the company’s track record. However, past data usually does guarantee future performance.

The bottom line

IPO investing has its own risks and rewards. But do not invest blindly; read the prospectus carefully. You would then get an idea about the company’s potential.

 

Major IPOs lined up for the coming month

Forthcoming IPO

IPO Size

CDSL

Rs 400 crore

Continental Warehousing

Rs 400 crore

 

 
Market Quotes by TradingView

Do you know how much industries contribute to the Indian GDP

POLL

 

MOST VIEWED CONTENT

How does GST impact your wallet?

How does GST impact your wallet?

Deemed as the biggest tax reform, what does GST have in store for your finances?

6 Documents that must be linked with your Aadhaar card

6 Documents that must be linked with your Aadhaar card

There are several documents you need to link to your Aadhaar card. Here’s what you must know about them.

Could GST make your dream home a reality?

Could GST make your dream home a reality?

Potential home buyers could be in for a treat post the GST rollout. So, what does the one-tax regime bring with it?

FAQs about fixed deposits

FAQs about fixed deposits

Need a crash course on opening a Fixed Deposit account? Here are some of the most asked questions regarding FDs.

Beware of these 6 fees when buying real estate [Infographic]

Beware of these 6 fees when buying real estate [Infographic]

Buying a home is a wonderful accomplishment. But it sometimes comes with hidden costs. Here's what you must know

Property inheritance: What you must know when making your will

Property inheritance: What you must know when making your will

A will is an essential document if you want to leave behind an inheritance. But do you know how to go about the procedure?

Identity checks to be mandatory for cash dealings of above Rs. 50,000

Identity checks to be mandatory for cash dealings of above Rs. 50,000

Banks and financial institution are now required to check IDs for cash transactions above Rs. 50,000. Here's what you need to know about the changes

boy

We would love to hear from you!

Question, comment or concern? Our contact form is the best way to get in touch. We will respond to you within 5 working days.

NEWSLETTER