Initial Public Offering or stock market IPO is crucial to the stock market. As the company goes public from private, it changes the position of the company entirely. Thus, one can understand why IPO is important. Let’s look at the life cycle of an IPO.
The life cycle of an IPO is divided into three main parts –
- Pre-IPO Stage
- IPO Stage
- Post-IPO Stage
- Pre-IPO Stage
The pre-IPO stage begins with the company deciding to go public. Next, the company willing to share its shares comes up with an IPO. The first step of initiation of this process is the appointment of lead managers and registrars.
Next, the lead managers prepare a draft prospectus. (A draft prospectus is a plan with which the company proceeds with the IPO). They must make the prospectus as lucrative as possible to attract more investors.
And finally, this prospectus is sent to SEBI for a final check of rules and regulations.
SEBI works as the regulator for all the proceedings. It approves the prospectus after giving it a check.
Once they get the approval for the prospectus, lead managers forward it to stock exchanges to get approval. They also decide the date for the IPO after a discussion with the company and its consultants.
- IPO Stage
The IPO is finally out, and investors can participate. After that, the shares get open to bidding in the form of lots.
A lot has a decided number of company shares, and every lot size can vary from 2 shares in one lot to 100 shares in one lot. Therefore, investors can only bid for lots, not individual shares.
Once the applications for the bidding close, lead managers send this data to the registrars. Sometimes, IPOs get oversubscribed or undersubscribed. Oversubscription occurs when the number of applications received exceeds the number of shares the firm wants to publicise. For example, a company wants to sell Rs. 2 Crores shares. If the applications received are for Rs. 2.5 Crores, the IPO is oversubscribed. On the other hand, if this number is less than Rs. 2 Crores, the IPO is undersubscribed.
- Post-IPO Stage
The registrars go through all the applications and allot shares to the applicants. First, they collect all the details like the application form, payment etc. Then, after clearing all the bogus applications, they prepare the list of shareholders. Later, They send the shares to the investor’s Demat account. They also send back the refund for rejected applications.
After allocating shares to all the shareholders, lead managers and registrars help the company get on the stock market list. Finally, one can trade their shares at any time after the listing.
Conclusion
The IPO process in India is very long and involves various steps. The most crucial step for us as an investor is the IPO stage. First, one needs to study and invest in the best option available.
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