IPO Basics Complete Guide, Benefits, Types, How to buy & List of Upcoming IPO

Warm regards Investors

You must have heard the names of big companies like the Reliance, the D-Mart, the Fortune and many like these. They all keep on extending their business on new themes with the same brand name.

In India, every day, hundreds of startups are also commenced.  So, whenever any new unit gets open in the Share market, it has to go through a common channel, which is known as the IPO.

This article will present you with detailed knowledge about IPO basics.

What is IPO and its Process?

Now let us explain to you the term IPO.

Is the IPO full form in banking and IPO full form in market the same:

The IPO full form is Initial Public Offering (IPO). As the name suggests, it means the company approaching the market to raise fresh funds or to list in the share markets.

Yes, it is one and the same. It is Initial Public Offer in both cases. You normally apply for IPO through the banker to the IPO whereas after listing the IPO is traded in the share market.

IPO or Initial Public Offering is a process for every new company to offer its shares to the public for the first time. It means that when the company lands in the share market, before that it has to sell its ownership to the public to raise the funds through them and this is required to be done through the process called the IPO (Initial Public Offering).

IPO is the compulsory process which is required to be followed by every new brand/startup/unit. If any new company attempts to skip this process, then it will not anymore be tagged the title as “the legal company” and therefore, it will not be listed in the stock exchanges like the NSE or the BSE.

Why do we need IPO?

IPO is literally very essential to get your company listed on the market. “Listed in the market” implies that after completing the process of IPO, your firm is given a green card by the SEBI to trade in the stock exchange market. It can sell or buy the stocks to and from the public or interesting parties respectively.

IPO is just a medium to get your company registered with the NSE and the BSE, after finding it happening and financially capable by the SEBI.

How does a Company offer IPO?

You must be pondering how do you trade in an IPO? Right? What are the steps of an initial public offering?

It is a step by step process. It involves-

  • Any company alone cannot raise funds from the public. Rather, it needs support from a financial institution and for that, it hires an investment bank. The Investment bank can be any legalized bank.
  • These investment banks act as a mediator between the company and the public.
  • The investment bank helps the company to raise funds from the public by offering debt or equity shares to them.
  • Now you know well that the shares are bought at a certain price by the customers and this price value for each share is first negotiated between the company and the investment banker. With the mutual understanding between these two entities, a fair price is finally announced in the market.
  • It is to be noted that the stocks/shares are offered to the public to apply for the subscription for a certain time period. Generally, the duration of this offer remains for 3 to 10 days only. During this period, the investor can apply for the company IPO and can acquire the ownership in the company, after getting the allotment of the applied shares.
  • After the price value for shares is decided by the investment bank and the company, the shares are offered in the market for the public.
  • But before offering in the market, the investment bank takes the whole SRS of the company to the SEBI. The SEBI checks the whole documentation and the agreement details between the investment bank (the underwriter) and the company. It also verifies financial statements, management background, any legal problems, where the money is to be used etc. After investigation of all such documents, the SEBI approves the offering for IPO and also set an effective date when the stock will be offered to the public.
  • The public who finds interest in the offer applies to the shares and in this way, the company raises funds from them.
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Here, a question arises is that why these companies need funds from the public? What is the motive behind it?

So the answer is as simple as that, which is seen in everybody desires-

  • The company raises funds to expand its existing units or launching new themes in the market.
  • The company may want to pay its debts or loans.
  • The company may want to fulfill its other liabilities.

If you want to check the objectives of the company for raising the money from the public, then you can refer to the Red Herrings of the company. It discloses all the information regarding the objectives of the company and the financial background of the company. It is like the prospectus which is available publically.

You can grab the red herrings of any company from the website www.sebi.co.in

Types of IPO

The company can issue shares at a certain price value. This price value is set on the basis of two types. These are

  • Fixed Price
  • Books building

When the company offers shares to the public at a fixed price, then the investors have to buy the shares at that fixed price only. There is no choice of negotiation there.

When the company and the investment bank (the underwriter) set a price band with mutual negotiation and that price band ranges between two numbers, then it is said to be the book building price.

Suppose, if a company has issued 100 shares to the public for price band- 10 to 20. It means that it is offering the public a choice to buy the company’s shares at any price which is falling between 10 and 20 rupees.

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In case of a fixed price, the company does not disclose any choice. If the same 100 shares are available to be sold at price Rs 10, then the public has to buy the shares at Rs 10 only.

List of New and Upcoming IPOs in India 2024

How to Buy IPO?

You should and you can invest in IPO, but your decision should be backed with the careful analysis of the company and related associated associations. After analyzing the company details from every angle and after confirming it with the standard benchmark, then only you should invest in IPO.

The factors of considerations may be as under-

  1. You should read the whole prospectus of the company from the red herrings. – You should figure out its financial background details, the company’s risk-bearing capacity, the liabilities, and its performances. The company with a sound performance workout should be opted by you.
  2. You should collect the details regarding the underwriter. – The underwriter is nobody but that investment bank only who sponsors or sell the securities in the market for the company. You should observe that who is the underwriter and for which company it is underwriting. Usually, a potential IPO is backed by the big-brokerages/underwriters that have the ability to endorse a new issue as well.
  3. Lockup periods – Often IPO takes a deep downtrend after the IPO goes public. The reason behind this fall of the share price is the lockup period. A lockup period is a contractual caveat that refers to a period of time the company’s executives and investors are not supposed to sell their shares. After the lock-up period ends, the share price experiences a drop in its price.
  4. Flipping – People who buy stocks of the company going public and sell-off on the secondary market in the view to get quick money are called flippers.  Flipping initiates the trading activity.
  5. You should also mine out the details about the promoter of the company and his/her performance in the past years.
  6. You should also consider the risks aspects engaged in the execution of the plan.
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  8. Income Tax on profit from Share trading in India

Things you should know before investing

It is a universal truth the business means the risk. The risk factor is associated with every kind of business, whether it is a short cap business or a large-cap business. The presence of risk appetite can lead the firm or the investor at the most successful latitudes of the returns by gaining the highest returns, or it is the risk factor only, which can drop the investor in the pool of bad-debts of the share of losses.

So, before investing in the IPO, it should be knotted in your mind that there will be a risk definitely in this. No company will ever guarantee you to preserve your capital from losses. The returns will depend upon your risk appetite and the market conditions as the stock trade are subjected to market risks always.

If you fear to take any risk or you have less knowledge about the share market, then you can take help from some professional expert.

Advantages of IPO

  1. Listing of shares–

The company after getting listed through the IPO process is able to trade regular in stocks in the market.

  1. Accumulates wealth–

The IPO enables the company to raise wealth from the public. Through this fund, the company can use it to pay its liabilities and extend its business.

  1. Owner diversification–

The promoter of the company can diversify his/her business on various grounds on different themes with the use of generated funds from the public.

  1. Other advantages include increment in financing prospects, executive compensation, and increment in the company’s prestige.

Disadvantages of IPO

  1. Short-term growth pressure

The company feels the pressure of growing rapidly within a short span of time because they have the pressure from the interesting investors and the underwriters and that of the SEBI.

  1. Disclosure of confidentiality-

The company has to disclose its confidential details regarding all its liabilities and financial knowledge because they have to show the company’s details in its prospectus to attract the investors to buy its shares.

  1. Restrictions on management, loss of personal benefits and trading restrictions are some other disadvantages associated with the upcoming IPO.

Current IPO 2024

IPO Company Issue size IPO Date
Positron Energy 12 – 14 Aug Rs. – 51.00 cr
Aesthetik Engineers 08 – 12 Aug Rs. – 26.00 cr
Unicommerce eSolutions 06 – 08 Aug Rs. – 276.57 cr
Brainbees Solutions 06 – 08 Aug Rs. – 4193.73 cr
Ola Electric Mobility 02 – 06 Aug Rs. – 6145.56 cr
Afcom Holdings 02 – 06 Aug Rs. – 74.00 cr
Picture Post Studios 02 – 06 Aug Rs. – 19.00 cr
Ceigall India IPO 01 – 05 Aug Rs. – 1252.66 cr
Dhariwalcorp 01 – 05 Aug Rs. – 25.00 cr
Akums Drugs and Pharmaceuticals 30 – 01 Aug Rs. – 1856.74 cr

So, this is all about IPO and its process.

Conclusion-

Dear readers! Thanks for taking out your valuable time for reading the content about IPO basics.

If you want to enter into the ownership of some big and good company, the IPO is a simple and direct way to execute it. The IPOs for a company are opened once and you need to invest in these after careful analysis of the company’s financial and performance details.

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I am much delighted to share my knowledge on What is an IPO basic? you hope it helps.

Thank you & I wish you great luck ahead.