As companies gear up for their public issues, it’s essential to grasp the ins and outs of initial public offerings (IPOs). In this article, we will delve into five important IPO terms that will equip you to navigate the world of stock market offerings.
- IPO activity has surged, with 15 companies debuting in July, including those on SME platforms.
- Netweb Technologies’ IPO (Rs 631 crore) and Mankind Pharma’s IPO (Rs 4,326 crore) were notable public issues.
- Cyient DLM, Ideaforge Tech, and Utkarsh Small Finance Bank are prominent newly listed companies.
- More IPOs are expected, promising a busy season ahead.
- Essential IPO terms explained: book-built vs. fixed price, offer for sale vs. fresh issue, ASBA, anchor investors, and greenshoe option.
IPO News: Stock Market Activity on the Rise
With the stock market experiencing an upswing, IPO activity has also surged. July alone has witnessed the debut of 15 companies on the stock exchanges, including those on the SME platforms.
Recent Notable IPOs Among the recent IPOs, Netweb Technologies’ IPO, with an issue size of Rs 631 crore, was the largest. However, Mankind Pharma’s IPO, raising Rs 4,326 crore, takes the lead as the biggest public issue this year, followed by several smaller ones.
Prominent Newly Listed Companies
Cyient DLM, Ideaforge Tech, and Utkarsh Small Finance Bank stand out among the recently listed companies, being relatively larger in size.
5 Crucial IPO Terms to Know Before You Invest in These Companies
Book-Built Issue IPO and Fixed Price
When a company decides to go public, it can choose between a fixed-price IPO and a book-built issue. In a fixed-price IPO, the company sets a specific price for its shares before offering them to the public. On the other hand, a book-built issue IPO sets a price range within which investors can bid for shares. The final price is determined based on the demand for the shares at different price levels, ensuring a fair and market-driven valuation.
Offer for Sale versus Fresh Issue
In an IPO, companies can raise capital through a fresh issue or an offer for sale (OFS). A fresh issue involves issuing new shares to the public, and the funds raised from this process are utilized for various purposes like expansion, research, or paying off debts. On the contrary, an OFS means existing shareholders, such as company promoters or early investors, sell their shares to the public. In this case, the company doesn’t receive any funds, and it’s the selling shareholders who benefit from the sale.
ASBA (Application Supported by Blocked Amount) in IPO
ASBA is a convenient IPO application mechanism introduced by SEBI (Securities and Exchange Board of India). When you apply for an IPO, the required application money is not transferred to the issuer upfront. Instead, it is temporarily blocked in your bank account. If you are allotted shares, the money is deducted from your account, and if not, it is released, and you continue to earn interest during the application period.
Anchor Investors in IPO
Anchor investors are significant institutional investors like mutual funds, insurance companies, or sovereign wealth funds. Before an IPO opens to the public, these investors are offered a chance to subscribe to the issue. Their participation indicates their confidence in the company’s potential and acts as an endorsement for the IPO. Anchor investors are allotted shares a day before the IPO opens to retail investors, and their involvement helps attract more retail investors to the offering.
Greenshoe Option in IPO
In an IPO, if there is more demand for shares than the company has offered, it can exercise the greenshoe option. This option allows the company to issue additional shares beyond the original offering size up to a specified limit. These extra shares are typically borrowed from the promoters or major shareholders. The greenshoe option helps stabilize the stock price and prevents it from soaring too high due to excessive demand, ensuring a smoother post-IPO trading experience.
How Can You Invest in Upcoming IPOs?
- Conduct Thorough Research: Research the companies going public, their financial performance, business prospects, and growth potential. Evaluate if their offerings align with your financial goals and risk appetite.
- Select Suitable IPOs: Choose the IPOs that resonate with your investment objectives and have a promising outlook. Diversify your portfolio by considering various sectors and industries.
- Pick an Online Trading Platform: Select a reliable and user-friendly online trading platform that suits your preferences. Ensure it offers IPO application services and supports seamless trading.
- Apply for IPOs: Apply for the chosen IPOs through your trading platform using ASBA for a smooth application process. Remember to review and double-check your application details.
- Monitor Allotment Status: Keep an eye on the IPO allotment status and be patient, as it may take some time. If you are allotted shares, the required amount will be deducted from your account.
- Stay Informed: Stay updated on market trends, news, and company performance post-IPO. Make informed decisions based on developments in the stock market.
- Consider Long-Term Investment: IPO investing can be rewarding in the long run. Avoid making hasty decisions based on short-term fluctuations and focus on your financial goal.
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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.