IPO means Initial Public Offering. In the process, a privately held company makes its shares publicly available for the first time. A private company with a handful of shareholders shares the ownership by going public by trading its shares. Through this, the company gets its name listed on the stock exchange.
1. To Make Money: Every company needs money; it may be for expanding, improving their business, or to better the infrastructure and repay loans.
2. To Increase Liquidity: It opens doors to employee stock ownership plans like stock options and other compensation plans, which attracts the talents in the cream layer.
3. To Show Credibility: A company going public means that the brand has gained enough success to get its name flashed in the stock exchanges.
4. To Grow: In a demanding market, a public company can always issue more stocks. This will pave the way for acquisitions and mergers as the stocks can be issued as a part of the deal.
Book Building Offering:
In a Book Building Offering, the stock price is offered in a 20% band, and interested investors place their bids. 'Floor Price' is the lower level of the price band; 'Cap Price' is its upper limit. Investors bid for the number of shares and the price they want to pay. It allows the company to test interest in the initial public offering among investors before the final price is declared.
Fixed Price Offering: Under Fixed Price, the company going public determines a fixed price at which its shares are offered to investors. The investors know the share price before the company goes public. The investor must pay the full share price when making the application to partake in this IPO.
Having an online application process makes it easier for people today to apply for an Initial Public Offering. Here are a few requirements you need to fulfill before you go ahead with the Process:
Decide the IPO you want to invest in: Go through the Draft Red Herring Prospectus to analyze the Financial Health and check valuation and promoter details. You analyze the market potential of the Industry for a better understanding.
Arrange the Funds Required: You will have to pay in advance, regardless of whether it is a fixed price or book building IPO, and for that, you will need funding.
Get a Demat Account: The most important requirement to subscribe to an IPO is to get a Demat Account. A Demat Account holds shares and other financial securities electronically.
Applying for the IPO: Once, you have a Demat Account, you can sign up at https://eipo.app/ and follow the steps as discussed below:
1. Enter Pancard and Click Proceed
2. Validate OTP
3. Select the Company you want to bid
4. Select the No. of Shares
5. Enter UPI Details
6. Submit the Application
You are required to meet the requirements as stated below:
1. You should have a valid PAN Card.
2. You should have a Demat Account
3. In case, you want to sell the shares after allotment, you need the have a Trading Account.
1. If you have purchased an IPO, you are exposed to the fortunes of the respective company. Therefore, you bear a direct impact on its success and loss.
2. An IPO has the highest potential to reward the returns, although, on the flip side, it can also sink your investment without a sign.
3. Please note that a company that offers its shares to the public is not indebted to reimburse the capital to the public investors.
4. You are expected to analyze your potential risks and rewards before investing in an IPO. If you are a novice, read up an account from an expert or a wealth management firm.
5. There is no guarantee whether you as an investor will get any share.
6. In the case of oversubscription, the shares are allotted on a proportionate basis, making the allotment of shares for small investors rare.
7. Your money will get locked for some time.
8. There is a possibility of the shares being quoted at a lesser rate than the rate offered, after the listing which results in loss of not only interest but also the principal invested.
After the clearance of the ‘Draft Prospectus' by SEBI and Stock Exchanges give their approval, it's up to the company going public to finalize the date and duration of the IPO. The Company consults with the Lead Managers, Registrar of the issue, and Stock Exchanges before deciding the date.
The Company decides the price or price band of an IPO with the assistance of lead managers (merchant bankers or syndicate members). SEBI, the regulatory authority in India or Stock Exchanges validates the content of the IPO prospectus, but, does not play any role in fixing the price of a public issue. SEBI.
Companies carry a high risk of IPO failure if they ask for a higher premium as if the investors do not like the company or the issue price, they don’t apply for the IPO, resulting in an undersubscribed issue. In this case, companies either revise the issue price or suspend the IPO.
The listing price of the IPO is decided by the syndicate of the investment banks performing the IPO through a process called book building.
Syndicate members are the broking houses responsible for distributing IPO applications, receiving filled applications from investors, and timely updating the data on the stock exchange IPO shares bidding platform (NSE / BSE).
As part of the pre-issue process, the Lead Manager (LM) evaluates the business plan, management, and legal aspects of the company. In addition to drafting and designing Offer documents and the Prospectus, the LM also drafts statutory advertisements and memoranda containing salient features of the Prospectus. The BRLMs ensure compliance with stipulated requirements and completion of prescribed formalities with the Stock Exchanges, RoC, and SEBI including finalization of Prospectus and RoC filing. Appointment of other intermediaries viz., Registrar(s), Printers, Advertising Agency, and Bankers to the Offer is additionally included in the pre-issue processes. The post-issue activities including management of escrow accounts, coordinating non-institutional allocation, intimation of allocation and dispatch of refunds to bidders, etc are performed by the LM.
Following the Offer, there will be essential following-up tasks, which include the finalization of the trading and dealing of instruments as well as the dispatch of certificates and the Demat of the shares, with the various agencies involved in the Offer such as the Registrar(s) and Bankers to the Offer, as well as the bank handling refunds. This merchant banker is responsible for ensuring that these agencies fulfill their responsibilities and facilitating their ability to discharge this responsibility through appropriate agreements with the Company.
An FPO is a stock issue of additional shares made by a company that is already publicly listed and has already gone through the IPO process.
Primary Market: The primary market is the market where investors can buy shares directly from the issuer company to raise their capital. It is a way for companies to enter into the secondary market. For you, as an investor, A primary offering, such as with a corporate bond, means you are buying it directly from the issuer, at par value, usually. Secondary Market: A secondary market is a market where stocks are traded after they are initially offered to the investor in the primary market (IPO's etc.) and get listed on the stock exchange. The secondary market comprises equity markets and debt markets. For you, as an investor, the secondary market is a platform to trade listed equities, therefore, you can buy or sell existing issues.
Retail Individual Investor (RII)
1. ‘Resident Indian Individuals’ or RIIs, ‘Non-Resident Indians’ or NRIs, and ‘Hindu Undivided Families’ or HUFs who apply for less than Rs 2 lakhs in an IPO come under the RII category.
2. No less than 35% of the Offer is reserved for the RII category.
3. RII category allows bid at the cut-off price.
(Cut-off price is a price within the Price Band of a book-building IPO, decided by the Company going public. Applying on Cut-off price means the investor is ready to pay whatever price is decided by the company at the end of the book-building process.)
1. If IPO doesn't get over-subscribed in RII Category, full allotment to all applicants is granted. 2.If IPO is oversubscribed in this category - The allotment to each investor shall not be less than the minimum Bid Lot, subject to availability of Equity Shares in the Retail Portion. For example, if the IPO subscribed 2 times in retail 1 out of 2 applicants will get 1 lot irrespective of how many shares they applied for. 3.Retail and non-institutional bidders are permitted to withdraw their bids until the day of allotment.
Note: To Maximize allotment in this Category-
1. Always apply at the cut-off price.
2. If IPO oversubscribes, apply only 1 lot per IPO application.
3. Apply through multiple accounts in your family member's name.
As per Clause 8.8.1, the Subscription list for public issues shall be kept open for at least 3 working days and not more than 10 working days. In case of Book built issues, the minimum and maximum period for which bidding will be open are 3 - 7 working days extendable by 3 days in case of a revision in the price band. The public issue made by an infrastructure company, satisfying the requirements in Clause 2.4.1 (iii) of Chapter II may be kept open for a maximum period of 21 working days. As per clause 8.8.2., Rights issues shall be kept open for at least 30 days and not more than 60 days.
Minimum Order Quantity is the minimum number of shares an investor can apply while bidding in an IPO. If the investor wants to bid for more shares, they can apply in multiples of IPO market lot (lot Size or IPO bid lot) of shares.
IPO: Power Grid Corporation of India Limited IPO
Public Issue Price: Rs. 44/- to Rs. 52/- Per Equity Share
Market Lot: 125 Shares
Minimum Order Quantity: 125 Shares
No, bidding for shares in an IPO doesn't give any guarantee to get the shares. As it's a bidding process, allotment depends on the number of bids received in different categories, the price at which the investor applied for shares, etc. Once IPO closes, the registrar of the issue collects all the bidding information and prepares a ‘Basis of Allotment'. This document provides information about the bids received by a variety of investors at different prices and the pattern of allotment.
Basis of Allotment or Basis of Allocation is a document published by the registrar of an IPO to stock exchanges and IPO investors. This document provides information about the final price fixed for an IPO, issue subscription (bidding) information or demand of an IPO, and share allocation ratio.
The IPO allotment information is categorized by the number of shares applied by an applicant. For each such category, detailed bidding information is provided in this document including the number of valid applications received, the total number of shares applied, the ratio of the allotment, and the number of shares allocated to the applicants.
The ratio of the allotment is a critical field for IPO's oversubscribed multiple times. This field tells how many applicants will receive a single lot of shares among a certain number of applicants. For example, ratio 1:8 means only one out of eight applicants received one lot of shares; ratio value 'FIRM' means all the applicants are eligible to receive a certain amount of shares.
If you are an Individual investing less than 2lakhs, you need to choose the retail investors category (RII). However, if you are investing more than 2 lakhs then you will be considered as a High Networth Individual (HNI). The HNI bids fall under the Non-Institutional Category (NII).
Yes, if the investor has bid in a book building IPO, they can revise bided quantity and price of an already applied Book Building IPO anytime if the issue is still open for subscription. The investor has to fill a revision form and give it to the syndicate member.
Yes, an individual investor can apply in the Non-Institutional Investors category of an IPO.
"Individual investors, NRI's, companies, trusts, etc who bid for more than Rs 1 lakhs are known as Non-institutional bidders. They need not register with SEBI like RII's. Non-institutional bidders have an allocation of 15% of shares of the total issue size in Book Build IPO's."
No, they cannot. As per the rules below:
Joint Bids in the case of Individuals Bids may be made in a single name or as joint Bids. In the case of joint Bids, the Bid cum Application Form should contain only the name of the First Bidder whose name should also appear as the first holder of the beneficiary account held in joint names. The signature of only such First Bidder would be required in the Bid cum Application Form and such first Bidder would be deemed to have signed on behalf of the joint holders.
A Bidder should submit only one Bid (and not more than one) for the total number of Equity Shares required.
The determining factors for the selection of an IPO to invest in are:
1. Company's business and background
2. Company's financials
3. Promoters of the company and their background
4. Reason for raising fund
5. Number and size of the upcoming projects
6. Issue size and Issue price
7. Risk factors
If any Capital Asset (stock, property, precious metal, etc) is sold or transferred, the profits arising out of such sale are taxable as capital gains in the year in which the transfer takes place. Capital Assets are of two types i.e., long term and short term. Shares, debentures, and mutual funds are considered as Long-term capital assets when they are held for more than 12 months before they are sold or transferred. If they are sold or transferred before 12 months they are considered as short-term capital. Different rates of tax apply for gains on transfer of the long-term and short-term capital assets. Gains on the short-term capital asset are taxed as regular income.
If you sell IPO allocated shares within 12 months of IPO Allotment, it comes under short-term capital gains. All such gains are taxed along with the your regular income.
You can withdraw an IPO application within the bidding period. To withdraw an application, go to the order book, select the IPO and withdraw. The blocked money is released in 1 to 2 days.
Pre-IPO placement occurs when a portion of an IPO is placed with private investors before the IPO is scheduled to hit the market. Pre-IPO placements are typically funded by large hedge funds or private equity firms that are willing to purchase a large stake in the company.
As per SEBI followings institutions can apply under the QIB category:
1. Mutual Funds
2. Venture Capital Investors
3.Foreign Venture Capital Investor registered with SEBI
4. Foreign Institutional Investor registered with SEBI
5. Insurance Funds set up by post dept
6.Insurance Funds set up by military forces of India
7. National Investment Fund
8. Pension Fund (with at least 25 cr corpus)
9. Provident Fund (with at least 25 cr corpus)
10. Insurance Company
11. State Industrial Development Corporation
12. Scheduled Commercial Bank
13. Bilateral and International Development Financial Institution
14. Public Financial Institution as mentioned in section 4A of the Companies Act, 1956
The issue takes 6 days to be listed in the market.
You cannot apply multiple times through multiple applications for an IPO. If you would like to place an order for multiple applications, it works if you apply one of each of your family members' names. But again all eligible family members should have a Demat account and a PAN number.
There are two possible scenarios:
IPO will get oversubscribed multiple times in the retail category.
In that case, no matter how many lots you have applied, you will get a maximum of one lot and that too in a lottery system based on how many times IPO subscribed in the retail category. So you should not apply for more than one lot in a good issue that is expected to be oversubscribed heavily. IPO may not be fully subscribed in the retail category
However, in an IPO which may turn out to be not very popular and where subscription is less than or equal to one time in the retail category, n you will get as many lots as you have applied (maximum shares of Rs 2 lakh as that is the maximum limit in retail category). But this scenario presents a significant risk as there is not much demand for IPO shares and prices may fall on a listing day.
In summary, to be on the safer side, it is advisable to always apply for one lot only in all case.
IPO share allotment usually takes one week from the closing date for subscription.
Shares are transferred to your Demat account just before the day of listing the IPO shares at the stock exchanges.