What is IPO | How to Invest in IPO: An initial public offering, or IPO, is the process by which a privately held corporation or a government-owned company, such as LIC, acquires capital by selling shares to the general public or new investors. The firm is listed on the stock exchange after the first public offering.
The business must register its offer document with the market regulator, the Securities and Exchange Board of India, while launching an IPO (Sebi). The offer document comprises all pertinent information about the firm, its promoters, its projects, financial facts, the purpose for obtaining funds, issue terms, and so on.
Which companies can come out with an IPO?
To safeguard investors, the Sebi has established laws that require corporations to satisfy specific requirements before going public with their fundraising efforts. The corporation must, among other things, have net tangible assets of at least Rs 3 crore and net value of at least Rs 1 crore in each of the previous three full years, as well as a minimum average pre-tax profit of Rs 15 crore in at least three of the five years prior.
Where do the proceeds of the IPO go?
If the IPO creates new cash, the revenues go to the company and can be used for future development, debt reduction, and other purposes. If the problem includes a promoter’s or current investor’s offer for sale, the money flows to them rather than the firm. In the case of LIC, the issuance is a government-sponsored offer for sale, with the revenues going to the Indian government.
Who fixes the price of securities in an issue?
The issuer, in cooperation with the merchant banker, determines the price per share of the public offering. They arrive at the company’s overall valuation based on characteristics including assets, sales, profits, and future cash flow predictions, and the entire value is then divided by the number of post-offer shares outstanding to arrive at the price of each share.
Sebi, the regulator, is not involved in price fixing. What are the benefits of registering a business? While listing on the stock exchange requires corporations to make more disclosures on a regular basis, resulting in more strict compliance obligations, it may also assist a company obtain cash as well as diversify and increase its shareholder base.
Listing provides an exit to existing investors of the company. A listed company can raise share capital for growth and expansion in the future through a follow-on public offering or FPO.
Who can invest in an IPO?
An initial public offering (IPO) can be purchased by a variety of investors. Foreign portfolio investors (FPIs), mutual funds, commercial banks, insurance companies, pension funds, and other investors fall into the category of qualified institutional buyers (QIBs).
Retail investors are defined as anyone who invests less than Rs 2 lakh in an issue. High net worth persons are defined as retail investors who invest more than Rs 2 lakh.
To become an investor, you must be 18 years old. To invest, you’ll need a brokerage account, and you must be at least 18 years old.
What should you look for before investing?
The promoter’s credibility should be the most important factor to evaluate. However, before investing in the IPO, investors should do a financial study of the firm and compare it to rivals in the same industry.
Rather of going for a public issue of a business that is intending to list, investors should select a firm in the same industry that is already listed, provided it has excellent fundamentals and its shares are available at a reasonable price.
Investors should follow QIBs, who are seen to have more competence in assessment and evaluation, as well as a better capacity to do due diligence.
These institutional investors participate in the issue’s initial few days, and retail investors, who have a longer window for investing, can gauge demand by looking at the QIBs’ interest and simply following them. Retail investors can buy the issue if QIBs demonstrate a lot of interest. It’s best to avoid the QIBs if they’re chilly.