What is Initial Public Offer (IPO) in India?
An Initial Public Offer (IPO) in India is when a company offers its shares to the public for the first time. This process allows the company to raise money from investors to fund its growth, expansion, or other business needs. In return, the public gets an opportunity to buy ownership in the company through shares. The IPO is listed on the stock exchange, making it easy for investors to buy and sell the shares. The company must meet certain regulations set by the Securities and Exchange Board of India (SEBI) to ensure transparency and protect investor interests.
What is book built issue in IPO?
A book-built issue in an IPO is a process where the company allows investors to bid for shares at different prices within a specified price range. The final price at which the shares are offered to the public is determined based on the demand and bids received during this bidding period. The company and its lead managers collect these bids and then decide the price at which the shares will be allotted. This method helps the company find a price that reflects market interest and ensures a fair allocation of shares. It is commonly used to ensure that the shares are priced appropriately based on investor demand.
What is offer for sale (OFS) in an IPO?
An Offer for Sale (OFS) in an IPO is when existing shareholders or promoters of a company sell a portion of their stake to the public. Unlike a fresh issue where new shares are created and sold, an OFS involves selling existing shares from the promoters or other current shareholders. This allows the company to raise funds without diluting its ownership structure, as the capital raised from the sale goes directly to the selling shareholders. The IPO document outlines the number of shares being sold and the prices, and the proceeds from the sale are distributed to the sellers. It provides an exit route for investors who wish to sell their shares and provides liquidity to the market.
Can IPO include both book-built issue and offer for sale (OFS)?
Yes, an IPO can include both book-built issue and offer for sale. In such cases, the company may issue new shares to raise funds (book-built issue) while existing shareholders or promoters sell some of their shares to the public (offer for sale). The book-built portion allows the company to set a price based on market demand, while the offer for sale enables current shareholders to reduce their stake without affecting the company’s ownership structure. Combining both methods helps the company raise funds while also providing an opportunity for existing investors to exit or reduce their holdings.
What is subscription in an IPO?
Subscription in an IPO refers to the process where investors express their interest in buying shares of the company being listed. When a company launches an IPO, it offers a specific number of shares for sale at a particular price. Investors can subscribe to these shares by placing bids or applying for them. The subscription is measured in terms of how many times the number of shares offered is oversubscribed. For example, if a company offers 1 crore shares and investors apply for 3 crore shares, the subscription is 3 times. A higher subscription indicates strong investor interest, and it can affect the final allotment of shares.
What is open and close date for subscription in an IPO?
The open and close dates for subscription in an IPO are the specific periods during which investors can apply for shares. The open date is the first day when the IPO opens for subscription, allowing investors to start applying for the shares. The close date is the last day when investors can submit their applications. These dates are mentioned in the IPO prospectus and are set by the company in coordination with the regulators. Once the close date passes, the subscription period ends, and no further applications can be made. The company then processes the applications and allocates shares to investors.
What is IPO prospectus?
An IPO prospectus is a detailed document that a company prepares when it decides to go public and offer shares to the public for the first time. It provides important information about the company, its financial performance, business plans, and the risks involved in investing in the IPO. The prospectus also includes details about the number of shares being offered, the price range, how the funds will be used, and the company’s management team. This document is filed with the Securities and Exchange Board of India (SEBI) and is made available to potential investors so they can make informed decisions before subscribing to the IPO.
What is Red Herring Prospectus (RHP) in an IPO?
A Red Herring Prospectus (RHP) is a preliminary version of the IPO prospectus that is filed with the Securities and Exchange Board of India (SEBI) before the IPO is launched. It contains most of the details about the company, such as its financials, business operations, and risks, but it does not include the final price or the number of shares being offered. The main purpose of the RHP is to give potential investors enough information to assess the company’s potential before the actual offering. Once the price and other final details are decided, the company will release the final prospectus, which includes all the specifics.
What is allotment in an IPO?
Allotment in an IPO refers to the process where shares are distributed to investors who have successfully applied for them. After the subscription period ends, the company decides how many shares each investor will receive based on the demand and the number of applications received. If the IPO is oversubscribed (meaning more people apply for shares than are available), investors may receive only a partial allotment of the shares they applied for. The allotment details are usually announced a few days after the subscription closes, and investors are informed about the number of shares they have been allotted. This process ensures a fair distribution of shares among all applicants.
What is price band in an IPO?
The price band in an IPO is the range of prices within which investors can bid for shares during the subscription period. The company sets this range before the IPO opens, and it gives investors an idea of the minimum and maximum price at which shares can be purchased. For example, if the price band is set between ₹100 and ₹120, investors can choose to place their bids anywhere within this range. The final price at which the shares are allotted is determined after considering the demand and the bids received. The price band helps the company in the price discovery process and ensures transparency for investors.
What is issue price in an IPO?
The issue price is the final price at which shares are actually allotted to investors after the subscription period ends. The issue price is determined based on the demand from investors and can be anywhere within the price band.
Does price band and issue price have the same meaning in an IPO?
No, the price band and issue price do not have the same meaning in an IPO. The price band is the range within which investors can bid for the shares, such as ₹100 to ₹120 per share. It provides flexibility for investors to choose their bid price within this range. The issue price, however, is the final price at which the shares are actually allotted to investors after the subscription period ends. It is decided based on the demand for the shares and is usually within the price band. While the price band gives an idea of the possible pricing, the issue price is the exact amount investors pay for the shares.
What is lot size in an IPO?
The lot size in an IPO refers to the minimum number of shares that an investor must apply for when subscribing to the IPO. It is set by the company and can vary depending on the price of the shares and the company’s policies. For example, if the lot size is 10 shares, an investor must apply for at least 10 shares in a single bid. The lot size is important because it ensures that investors make bids in predefined quantities, making the process smoother and more organized. The total investment required is calculated by multiplying the lot size with the price of each share within the set price band.
What is investor category in an IPO?
In an IPO, investors are categorized into different groups based on their type and investment size. The main investor categories are:
- Retail Investors: Individuals who apply for shares up to a certain limit, typically ₹2 lakh. This category is aimed at the general public, allowing them to participate in the IPO.
- Qualified Institutional Buyers (QIBs): Large financial institutions, such as mutual funds, insurance companies, and foreign investors, who invest large amounts in the IPO. They are required to invest a significant portion of the total offer.
- Non-Institutional Investors (NIIs): High-net-worth individuals (HNIs) or groups who apply for shares worth more than the retail limit but less than the institutional category. They typically apply for larger quantities of shares.
Each category has different allotment rules, and the share distribution is done accordingly to maintain fairness in the process.
What is reservation in an IPO?
Reservation in an IPO refers to the allocation of a specific percentage of shares for certain categories of investors. For example, a portion of the shares may be reserved for retail investors, qualified institutional buyers (QIBs), and non-institutional investors (NIIs). Sometimes, the company may also reserve shares for employees or shareholders of the company. The reservation ensures that each group of investors gets a fair opportunity to participate in the IPO. The reserved shares are allocated based on the category’s share of the total offer, and the process helps maintain a balanced distribution among different types of investors.
What is discount to issue price in an IPO?
A discount to the issue price in an IPO refers to a reduction in the final share price offered to specific categories of investors, such as retail investors, employees, or shareholders of the company. For example, if the issue price of a share is ₹200 and a 10% discount is offered, eligible investors can buy the shares at ₹180. This discount is provided as an incentive to encourage participation from certain groups or to reward existing stakeholders. The discounted price is applicable only to those eligible under the defined terms and is mentioned in the IPO prospectus.
What is book running lead manager (BRLM) in an IPO?
A Book Running Lead Manager (BRLM) in an IPO is a financial expert or institution appointed by the company to manage and oversee the IPO process. Their main role is to help the company set the price band, conduct the book-building process, and ensure smooth execution of the IPO. They handle tasks such as preparing the prospectus, marketing the IPO to potential investors, and coordinating with regulators like SEBI. The BRLM also plays a key role in determining the issue price based on investor demand. They act as a bridge between the company and investors, ensuring transparency and efficiency throughout the IPO process.
What is registrar in an IPO?
A registrar in an IPO is a financial service provider appointed by the company to manage the administrative aspects of the IPO process. Their main responsibilities include processing investor applications, verifying details, and finalizing the allotment of shares. They also handle refunds for unsuccessful applications and ensure that the allotted shares are credited to the investors’ demat accounts. Registrars play a crucial role in maintaining accurate records and ensuring that the IPO process is conducted smoothly and transparently. Their contact details are provided in the IPO prospectus so investors can reach out for any queries related to the allotment or refunds.
What is total issue size in an IPO?
The total issue size in an IPO refers to the total value of shares being offered to the public by the company. It is calculated by multiplying the total number of shares offered with the issue price. For example, if a company offers 1 crore shares at an issue price of ₹100 per share, the total issue size would be ₹100 crore. This figure includes shares allocated to different investor categories, such as retail investors, institutional buyers, and employees. The total issue size is an important indicator of the scale of the IPO and helps investors assess the company’s fundraising goal.
What is fresh issue in an IPO?
A fresh issue in an IPO refers to the new shares that a company issues to raise capital for the first time. These shares are newly created and are sold to the public to raise funds for the company’s expansion, debt reduction, or other business purposes. The funds raised from the fresh issue go directly to the company. Unlike an offer for sale, where existing shareholders sell their shares, a fresh issue involves the company offering new shares to increase its total share capital. This helps the company raise money while allowing investors to buy shares in the business.
Are fresh issue and book-built issue the same in an IPO?
No, a fresh issue and a book-built issue are not the same, although they can be part of the same IPO. A fresh issue refers to new shares issued by the company to raise capital. The money raised from these new shares goes directly to the company for business purposes like expansion or reducing debt.
On the other hand, a book-built issue is a method used to determine the price at which shares will be sold in the IPO. In a book-built issue, investors bid for shares within a set price band, and the final issue price is determined based on the demand. While a fresh issue can be part of a book-built IPO, the two terms refer to different aspects of the IPO process.
What is basis of allotment in an IPO?
The basis of allotment in an IPO is the process used to determine how shares are distributed among investors who have applied for them. This process is necessary, especially when the IPO is oversubscribed, meaning more investors have applied for shares than the company has offered. The allotment is done as per the rules set by SEBI, ensuring fairness and transparency. For retail investors, shares are often allotted through a lottery system if demand exceeds supply. For other categories, like institutional investors, allotment is based on the proportion of their bids. The basis of allotment ensures that the shares are distributed systematically and equitably among all applicants.
What is initiation of refund in an IPO?
The initiation of a refund in an IPO refers to the process where the company or registrar returns money to investors whose applications were not fully or partially allotted shares. This happens when the IPO is oversubscribed, and not all applicants receive the shares they applied for. Once the allotment process is completed, the excess amount paid by investors is refunded to their bank accounts. Refunds are usually initiated within a few days of the allotment date, and the money is unblocked. This ensures that investors receive their unused funds quickly and securely.
What is credit of shares to demat account in an IPO?
The credit of shares to a demat account in an IPO refers to the process where the allotted shares are electronically transferred to the investor’s demat (dematerialized) account. Once the allotment is finalized, the registrar ensures that the shares are credited to the respective investors’ accounts. This step is crucial as it confirms the ownership of the shares. The credited shares are then available for trading on the stock exchange from the listing date. The process ensures secure and paperless handling of shares, making it easier for investors to manage their holdings. This usually happens a few days before the shares are listed on the stock exchange.
What is listing of shares and listing date in an IPO?
The listing of shares in an IPO refers to the process where the company’s shares are officially admitted to the stock exchange, allowing them to be traded by the public. The listing date is the specific day when the shares are listed and start trading on the exchange. On this day, the shares become available for buying and selling by investors, and their market price is determined based on supply and demand. The listing date is an important milestone for both the company and investors, as it marks the beginning of the company’s presence on the stock market. It typically occurs a few days after the allotment of shares.
What are anchor investors in an IPO?
Anchor investors in an IPO are large, institutional investors who are invited to invest in the company before the IPO opens for the general public. They include mutual funds, insurance companies, and foreign institutional investors. Anchor investors are allotted shares at a fixed price within the price band to generate confidence and create demand for the IPO. Their participation helps set a benchmark for the offering and attract other investors. The shares allotted to anchor investors are subject to a lock-in period, meaning they cannot sell these shares for a certain period, typically 30 days. This ensures stability in the early trading days of the IPO.
What are key performance indicators (KPI) in an IPO?
Key Performance Indicators (KPIs) in an IPO are specific metrics that reflect the company’s financial health, operational efficiency, and growth potential. These indicators help investors assess the company’s performance before deciding to invest. Common KPIs in an IPO include revenue growth, profit margins, return on equity (ROE), debt-to-equity ratio, and market share. Companies often highlight these KPIs in their prospectus to showcase their strengths and attract investors. By analyzing these metrics, investors can evaluate whether the company is performing well in its industry and if it has the potential to deliver long-term value.
What is grey market price (GMP)?
The grey market price (GMP) refers to the unofficial price at which shares of an IPO are traded before they are listed on the stock exchange. It is determined in the grey market, which operates outside the formal trading platforms. The GMP indicates the premium or discount investors are willing to pay over the IPO issue price. For example, if the issue price of a share is ₹100 and the GMP is ₹50, it means the shares are being traded at ₹150 in the grey market. The GMP reflects investor sentiment and the expected demand for the shares after listing, but it is not regulated or officially recognized by stock exchanges or SEBI.
What is ASBA in an IPO?
ASBA, or Application Supported by Blocked Amount, is a facility provided to investors applying for an IPO. It allows the investor’s application amount to be blocked in their bank account instead of transferring it immediately to the company. The amount is only debited if shares are allotted; otherwise, it is unblocked after the allotment process. This ensures that investors continue earning interest on the blocked amount in their savings account. ASBA is mandatory for IPO applications and provides a secure and efficient way to apply for shares, as it eliminates the need for refunds in case of non-allotment.
What is UPI-based application in an IPO?
A UPI-based application in an IPO allows retail investors to apply for shares through the Unified Payments Interface (UPI) platform. Instead of using traditional methods like net banking or submitting physical forms, investors can apply directly using their UPI ID. Once the application is submitted, a payment mandate is generated, which the investor approves through their UPI app. The application amount is then blocked in the investor’s bank account until the IPO allotment process is complete. If shares are allotted, the amount is debited; otherwise, the funds are released. This system simplifies the IPO application process, making it faster, paperless, and user-friendly for investors.
Conclusion
In conclusion, understanding the various terms used in the IPO process is essential for investors to make informed decisions. From concepts like price bands, issue prices, and allotments to key mechanisms like ASBA and UPI-based applications, each step ensures transparency and convenience. Additional elements such as anchor investors, grey market prices, and key performance indicators provide deeper insights into an IPO’s potential. By familiarizing themselves with these terms, investors can better navigate the IPO process, evaluate opportunities, and participate effectively in the primary market to build their financial portfolios.
Disclaimer: The information provided here is for educational and informational purposes only. It should not be considered as financial advice or a recommendation to invest in any IPO or security. Investors are advised to conduct their own research, review the prospectus carefully, and consult with a qualified financial advisor before making any investment decisions. The market involves risks, and past performance is not indicative of future results. Always exercise caution and invest based on your financial goals and risk tolerance.
Also Read – Cryptocurrency Simplified: The Rise of Digital Currencies
For any feedback – Click here