IPOs help enterprises and startups to improve and expand their business and also lends more credibility to the company as it is under scrutiny
India’s stock market has witnessed a number of IPOs or Initial Public Offerings, with the recent record breaking IPOs of Nykaa and Paytm. Companies such as Sigachi Industries have also managed to make a bumper listing on the stock market, with the cellulose-based manufacturer opening at 252.8 percent premium.
It is only expected that investment in IPOs will increase with time to capitalise on the boom in IPOs. Here’s all you need to know about IPOs and how they work:
What is an IPO?
The process of converting a private company into a public company by raising capital from the stock market is known as initial public offering. Investors are issued shares and private companies also list the shares on the stock exchange to get a fair worth for their shares as well as open the company to public scrutiny. Through IPOs, private firms can expand their company and raise funds for their projects.
Once a company is listed on the stock exchange, its shares can be traded in the open market as it is now a publicly-traded company.
Advantages of an IPO
IPOs help enterprises and startups to improve and expand their business. India’s tech companies have seen investments not only from Indian investors, but international investors too, who seek to invest through both public modes and private investments. Companies can acquire capital for fresh business and it also makes the company more reliable and transparent, in terms that it has to report its financial numbers and other developments to the stock exchange. The company also becomes more credible as it is under scrutiny.
Process of IPO
Initially, a company will pre-market itself before beginning its IPO. Companies advertise themselves to underwriters by sending a proposal about their services. The company is required to be approved by the Securities and Exchange Board of India (SEBI) before it can announce any date for the IPO.
Underwriters lead the IPO process and manage the companies’ IPO process by handling documentation, marketing and other work. Companies can advertise themselves through private bids or through public statements. Next, an IPO team is formed where lawyers, underwriters and other professionals come together to establish a final price of the shares. The company then issues equity shares on a fixed date to stockholders.
How to invest in an IPO?
People can invest in an IPO by applying through various trading platforms like Zerodha or through your bank account. Investors need to have a demat account and a trading account for the process of investment.
What is a good strategy for investing in an IPO?
It is only sensible to view a tech company or a startup from a larger perspective and analyse how far it can create business opportunities. Investors should evaluate companies going for IPOs and should not invest in companies that do not have clearly defined business models, focus or credible investors. An informed idea about the companies’ purpose for raising stock market is necessary to invest on an IPO.
One of the country’s biggest public issue was announced by Paytm’s parent company, One97 Communications. Paytm’s IPO was of Rs 18,300 crore and investors needed to invest at least Rs 12,840 in order to grab a single lot of the offer as the shares of Paytm were fixed at Rs 2,080 to Rs 2,150 per share.
Originally a mobile recharge platform, Paytm grew exponentially after demonetisation and managed to gain the sovereign wealth funds of Singapore and Abu Dhabi as anchor investors.