Explained: What is Initial Public Offering?
In this article, ETV Bharat explains the basics of an initial public offering (IPO) that helps small investors in understanding the entire process.
Business Desk, ETV Bharat: Indian capital market has been witnessing an ‘IPO Rush’ for some time. Sensing an opportunity in the growing interest shown by retail investors in the stocks, companies have lined up Initial Public Offers (IPOs) to expand operations and repay debts.
As per an estimate, twenty IPOs have hit the market since last September and they have attracted an average of 13 lakh applications from small investors.
Whereas, the average applications for the twenty IPOs that preceded the lockdown in March stood around 5 lakh only.
Meanwhile, the IPO of Easy Trip Planners' that hit the market on March 9 was oversubscribed by a whopping 159.33 times.
The Rs 510-crore issue received bids for over 240.27 crore shares against more than 1.50 crore shares on offer.
Read:| Paytm Money to facilitate investments in IPO, aims for 8-10% applications mkt share
Similarly, the IPO of MTAR Technologies, a precision engineering solutions company, was subscribed more than 200 times on the back of an overwhelming response from investors. March 5 was the last day of the IPO.
Riding on this positive wave, more companies like Kalyan Jewellers, Anupam Rasayan and Craftsman Automation are going to launch their respective IPOs in the coming week.
Against this backdrop, ETV Bharat brings you the basic details of IPO.
What is an IPO & What is its purpose?
IPO refers to the process of offering shares of a firm to the public for the first time.
Any unlisted company that wants to raise fresh capital to fund expansion or to reduce debt can opt to sell some of its shares to the public through an IPO.
After the completion of the IPO process, the company gets listed in the stock market and the stocks that were released to the public through the IPO can be traded in the stock market.
What is the regulatory procedure?
To file for an IPO, a company needs to hire investment bankers, file a prospectus with Sebi, wait for approvals and then market the issue before it opens to garner investor interest.
IPOs are usually open for subscription for 3-4 days. Then shares are allotted.
Who are the retail investors?
Anybody who bids for shares worth up to Rs 2 lakh is called a retail investor. As per the IPO norms framed by the SEBI, 35% of the shares issued are reserved for retail investors.
How is the price of a share fixed?
The company along with its bankers fix a price band for the IPO which is disclosed while marketing the issue.
Investors can bid within that price range.
The final price of the IPO depends on the demand for the shares and the subscription figure of the issue.
Only bidders who quoted higher than or equal to this price get the shares.
What is the bidding procedure?
Nowadays, online trading platforms or net banking portals usually have a web page dedicated to IPOs where one can apply for the desired issue. Investors need to buy the shares in lots.
A lot refers to the minimum number of shares one can bid for and in multiples thereof.
Enter the number of lots along with the bid price. Once the application is submitted, investors receive details like IPO application number and transaction details.
How are the shares allotted?
Share allotment usually takes place within 7-10 days after the bidding is completed. Till then, the funds are blocked in your bank account. Allotment depends on the subscription.
If there is a small oversubscription, the SEBI norms say that the minimum lot will be distributed amongst all applicants and the remaining shares will be assigned proportionally to the investors who have bid for more than one lot.
In case, if there is large oversubscription shares are allotted through a lottery system.