All about IPO (initial public offering)
Initial Public Offering (IPO):
A term well heard but seldom understood by most of the people. I came across a post in one of the threads many days back asking for some one to explain what is initial public offering. Well, before I begin, let me tell you that I'm a marketing guy and have no basic qualification in Finance as such. But I keep a keen watch on these things and keep my knowledge updated.
So an IPO is simply a company's first sale of stock/shares to the public. Its said that an IPO occurs when a company registers its stock with the Securities and Exchange Commission and can sell equity ownership in the company to the public. In simple words, I'm giving you (meaning the public) a part of the ownership of my business. I do it for the first time and hence it is an IPO (initial public offering). These stocks or shares are often refered as securities. These securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. It is done to raise a capital for the business from the market. The shares offered in an IPO are usually a new issue, but they may also be shares held by major shareholders, or a mixture of both. These are then free to be sold or purchased after the allotment at the prevalent market prices.
The process of the IPO can vary and involves sort of a complex application process for shares. The price at which the shares are sold will either be pre-determined, or determined by an auction process. If the price is predetermined, it depends on the total net asset value of the company. There are two components in the price of a share: face value and a premium/discount.
Example: Suppose we want to float an IPO for CE. For convenience, lets take our net asset value as 100crore. Now our requirement for a capital is, say, 1 crore. So I can float an IPO for 1 lac shares at a face value of Rs. 100 each. Now, if CE is a growing company and has very bright prospects, the demand for CE shares will be very high. Hence we can charge a premium for this demand. This extra money generated by the premium goes into the development of the company. Similarly, if the company is not doing well, the share price can drop below the threshold, when it is called "at-discount" If the share is sold at the face value itself, it is called as "at-par" (Talk about popularity.. 1 Share of Infosys can sell as high as upto Rs. 22000. What a premium)
An IPO also usually needs a mechanism for deciding how to distribute shares when there are too many applications (the offer is “over-subscribed”). This may be partly solved by an auction, but even auctions can have too many applications at a particular price point (i.e. higher prices will not buy the whole issue, at this price it is over-subscribed)
So this is all about IPO that I could tell you.
I have 1 question. "Why would public decide to invest their money in the IPO of any company?"
A term well heard but seldom understood by most of the people. I came across a post in one of the threads many days back asking for some one to explain what is initial public offering. Well, before I begin, let me tell you that I'm a marketing guy and have no basic qualification in Finance as such. But I keep a keen watch on these things and keep my knowledge updated.
So an IPO is simply a company's first sale of stock/shares to the public. Its said that an IPO occurs when a company registers its stock with the Securities and Exchange Commission and can sell equity ownership in the company to the public. In simple words, I'm giving you (meaning the public) a part of the ownership of my business. I do it for the first time and hence it is an IPO (initial public offering). These stocks or shares are often refered as securities. These securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. It is done to raise a capital for the business from the market. The shares offered in an IPO are usually a new issue, but they may also be shares held by major shareholders, or a mixture of both. These are then free to be sold or purchased after the allotment at the prevalent market prices.
The process of the IPO can vary and involves sort of a complex application process for shares. The price at which the shares are sold will either be pre-determined, or determined by an auction process. If the price is predetermined, it depends on the total net asset value of the company. There are two components in the price of a share: face value and a premium/discount.
Example: Suppose we want to float an IPO for CE. For convenience, lets take our net asset value as 100crore. Now our requirement for a capital is, say, 1 crore. So I can float an IPO for 1 lac shares at a face value of Rs. 100 each. Now, if CE is a growing company and has very bright prospects, the demand for CE shares will be very high. Hence we can charge a premium for this demand. This extra money generated by the premium goes into the development of the company. Similarly, if the company is not doing well, the share price can drop below the threshold, when it is called "at-discount" If the share is sold at the face value itself, it is called as "at-par" (Talk about popularity.. 1 Share of Infosys can sell as high as upto Rs. 22000. What a premium)
An IPO also usually needs a mechanism for deciding how to distribute shares when there are too many applications (the offer is “over-subscribed”). This may be partly solved by an auction, but even auctions can have too many applications at a particular price point (i.e. higher prices will not buy the whole issue, at this price it is over-subscribed)
So this is all about IPO that I could tell you.
I have 1 question. "Why would public decide to invest their money in the IPO of any company?"
Replies
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Mayur PathakPost in
Guys,
CE Finance section needs your help. We need to put in a lot of effort to make it a big success. So please pour in your replies, queries and posts.
Waiting for you feedback and suggestions. -
Kaustubh KatdareGood article by our Editor. Can we have more articles coming along? I think we can have a better understanding by inventing our own Money Games.
All questions, information on IPO are welcome in this thread.
-The Big K- -
Mayur PathakThank you Mr. Administrator.
Next I'll try to write some things about DMAT accounts, what are they, how to open them and what are the benefits. -
Prasad Ajinkya
I have 1 question. "Why would public decide to invest their money in the IPO of any company?"
Umm. Good Question .
Well, if the public are well informed about the company's progress and know that in the future (near or not), this company is gonna do well, then they would decide to invest their money in the IPO.
Simply put, during this bull-run (well, I think I can call it so, dontcha?), people are looking at IPOs as a method of making a quick buck. Get shares allocated during the IPO (assume that it has a 70%+ chance of increasing post listing) and sell of those shares for the loot!!
Well, some pointers for anyone who is wanting to go this way -
- There is a 10% short term gains tax which you will have to pay if you sell off your allocated shares within a year (thats 10% of your profits, if any)
- Would ask you to indulge in IPO only if you have money to spare, cos its not necessary that you get your money's worth of shares (this happens when the issue is oversubscribed), in such a scenario, the remaining moolah is returned to you after some time. Can you go without that money?
- Never crib that you sold off your shares instead of holding on to them for some more time because now they are worth much more. Thats just a notional loss, get over it! A good example would be when I had sold off some 100 shares of TechMahindra at 560 ... 2 months later TechMahindra was doing 1000+. Notional loss.
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Mayur PathakHow to invest in an IPO
Visiting this old post after a long time. There ahave been too many IPOs in the indian stock markets which has brought people back to investing recently. I have been bumping into many enquiries about how does one start investing. So here you go.
As I said, too many bulls have been locking horns in the stock market recently. A fallout of this capital market bull rally is the exponential increase in the activities in the primary market (IPO market). Companies are rushing in to tap the capital markets and raise funds through Initial Public Offers (IPO) and Follow on public offers (FPO). We have already discussed why one wishes to raise money from public. Now lets see how we, as a public can put our money. Though paper work has been considerably reduced, the process of applying in an IPO is still little complicated for people not familiar with investing in the stock market. Here are simple steps to start investing in stock market and IPO's. There are two basic ways to invest in IPO's
- Online mode
- Offline mode
This is the simpler of the two methods. To get started in investing in IPO's you will need to open a demat (Dematerialization) account cum trading account (To do this you will need a bank account and a PAN number). As you open the account, you will be given a user id and password to login through your trading account. There are various options and any bank will offer you an online/offline training on how to operate your demat account. You got to login and select the IPO you wish to invest in. Before you select to buy, transfer funds from your bank account to your trading account. Select the number of shares you want to apply for and the price at which you want to bid for (or use cut off option). If you get the shares allotment, the shares will be credited to your demat account. If you dont, the IPO refund will be sent by cheque to your postal address or through ECS to your bank account.
2. Investing in IPO's offline
Here you will need only the demat account. Trading account is not necessary unless you decide to sell the shares you have been allotted through IPO's. You will have to visit your nearest broker and get the IPO application form, fill it up and give the filled form along with the cheque to the broker. You will be given an acknowledgement form. If you apply for more than Rs. 50,000 you will need to attach a photocopy of your PAN card with the IPO application form.
Online or offline : Which method should you choose?
It depends. Online mode is more convenient and saves time, effort & maybe money too (if you consider fuel cost). But you won't be able to give a stop payment if you decide to change your mind after applying. If you are doubtful about investing in an IPO, its always better to use the offline mode to invest.
Notes:
- Its preferable to open a demat account in the same bank where you have your banking account. It will be easier to link them. But make sure your banker gives you online banking access and trading facility.
- Before investing in the stock market one should understand the risks involved or else the entire capital invested can be wiped out in no time.
- Do make sure to know every thing about the company who is floating and IPO before you decide to put your money in. Its better to have a professional advise.
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integratdbrainsAn amazing fact rather amusing...
There are several processes in IPO as mentioned by mayur.These are complex physical and mental processes on the corporates side.Though it sounds amazing that the company can actually raise capital for its expansion.There is a bitter side to it also. When the company gets listed on the stock exchange they have to follow alot of rigid regulations,one of which is everything that the company claims in black and white should have a physical evidence.I feel that it is more tax for the brain on the corporate side than the investor side(this is exclusively my personal opinion and i do respect the one who differs from mine. No debates! )
On the investor part only 'A single simple decision' is to be taken wheather to invest in the company or not. The credit rating companies makes this task much more simpler.
Anyone looking for investing in IPO in India my best picks,(A personal view again) Omaxe (a Rated one) try your hands on omnitech also though the risks are high. I hope that we have a higher DLF and Vishal Retail chunk here... CEans with these stocks are already making a 70 to 100% gain on it! 😀
An amusing fact : In US,out of the several processes, there is a process called beauty contest! Don't put on your weird imagining thinking caps,it is process when the investment banks contest to be the company's underwriters. A beauty contest where no beauty is tested.😒 -
master01Canadian retailer Lululemon Athletica Inc. on Tuesday raised the price of its planned initial public offering to $15 to $17 per share from $10 to $12. According to an amended registration statement with the U.S. Securities and Exchange Commission, the size of the offering remains at 18.2 million shares.
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