IPO

An IPO can be used by company insiders to diversify their holdings or generate liquidity by selling all or a portion of their private shares as part of the public offering. Companies often conduct an initial public offering (IPO) to obtain funds to pay off debts, support expansion plans, boost their public image, or any combination of these goals.

Types of Investors In An IPO

• Institutional Investors or Qualified Institutional Investors (QIIs)
• Non-institutional Investors (NIIs) / High Net Worth Individuals (HNIs)
• Retail Individual Investors (RIIs)

A few days following the end of the IPO subscription period, the shares are listed on the markets. Shares can be freely traded during market hours after the listing.

The procedure is quite different. No matter which application method you choose, the total sum is blocked from your bank account when you apply for a company's IPO. Despite appearing in your balance, it won't be used. If you have received the shares, the money will be taken out of your account after the allotment is finalised. The funds will be released and made usable if you did not get any shares in the IPO.

Decide which IPO you want to invest in.

The most recent IPO schedule for a given year is often known in advance. Research is necessary before investing in an IPO since there may not be much historical information available about the performance, management, and other essential basic characteristics. Here is where we contrast that business with a publicly traded one. So picking the IPO you wish to invest in is a crucial first action. Every firm that does an IPO releases a prospectus that contains information about its operations and future goals. Before making a choice, carefully read this prospectus and do your homework on the firm.

Necessary account to apply for an IPO

To invest in a fresh IPO and later trade it on the secondary market, you'll need the following three accounts:

Demat Account: This is where you keep your electronic shares.

A bank account is essential to fund your stock market operations. A bank account, on the other hand, might be useful when applying for an IPO. Almost all net-banking systems allow you to apply for IPOs using the Application Supported by Blocked Amount (ASBA) feature.

A trading account is used to purchase and sell stocks. Any broker can setup a trading account for you.

The company determines the pricing or price range of an IPO with the assistance of lead managers (commercial bankers or syndicate members).

The price of a public issue is not set by SEBI, India's regulatory body, or the stock exchanges. SEBI has only verified the information in the IPO prospectus.

Tips to Increase your Chances of IPO Allotment

The date and duration of an IPO are determined by the firm going public once the "Draft Prospectus" has been authorised by Stock Exchanges and certified by SEBI. Before choosing a date, the company consults with the Lead Managers, the issue's registrar, and stock exchanges.

The issuer company and the public issue's book building lead manager have created the "Draft Offer document." For evaluation by SEBI, this paper has been delivered. Following its evaluation, SEBI will either request adjustments from the lead managers or will accept the document, allowing the IPO to proceed.

On SEBI's website,at: http://www.sebi.gov.in/SectIndex.jsp?sub_sec_id=70 in the 'Reports -> Public Issues: Draft Documents' area, you may access draft documents. Draft Offer Documents Filed with SEBI" at: A "Draft Offer Document" is often a PDF file including information that a potential investor would need to know about the public offering. It primarily contains details on the firm, its operations, management, potential risks associated with applying to this issue, corporate finances, and the rationale for the company's decision to raise capital through an initial public offering (IPO).

Stage 2 Offer Document

After being approved by SEBI, the "Draft Offer document" becomes the "Offer Document." Offer Document is the "Draft Offer Document" amended with SEBI recommendations.

The "Offer Document" is delivered to the issue's registrar and the stock exchanges that the Issuer Company is willing to list on.

3. Red Herring Prospectus

The Issuer Company will add the Issue Size and Issue Price to the "Offer Document" and make it public once it has received approval from Stock Exchanges. Now known as "Red Herring Prospectus," the issuance prospectus.

Book Building IPO: If the issue is still available for registration, an investor may, at any moment, change the amount and price of an offer that has already been submitted. Investors are required to complete a revision document and submit it to the syndicate partner.

No, a single applicant for an IPO cannot submit numerous applications. According to the law, all of your applications for an IPO will be denied if you submit more than one application with the same name, Demat account, or PAN number.

Applying under each member of your family's name is effective if you want to make an order for numerous applications. However, once more, every qualified family member needs to have a demat account and a PAN card.

No, submitting an application for shares in an IPO or placing an offer on shares does not ensure that you will receive the shares.

The allotment is based on the number of offers received in each category, the amount at which the investor registers for the shares, and other factors because it is a bidding procedure.

After the IPO ends, the issue's registrar compiles all the offer data and creates a "Basis of Allotment." This document offers details on the proposals received from a variety of buyers at various rates as well as the pattern of allocation.

Market lot and minimum order quantity for IPOs are two crucial elements that investors should be aware of when placing an offer.

The lowest amount of shares an investor can apply for when placing an offer in an IPO is known as the Minimum Order Quantity. Investors may register in multiples of the IPO market lot (also known as the IPO offer lot) of shares if they wish to bid for more shares.

For all IPO buyers, this is a crucial issue. If you are submitting an IPO application, be sure to keep the following information on hand for any future communications with the business or issue registry.

picture of the application paper
Photograph of a check
Registration number when submitting an IPO online

According to Clause 8.8.1, the subscription list for public problems must remain available for no more than 10 working days. The minimum and maximum time for which tendering will be available in the case of book-built problems is 3 - 7 working days, expandable by 3 days in the event of a change in the price range. An infrastructure firm may keep the public issue available for a maximum of 21 working days if it satisfies the criteria in Clause 2.4.1 (iii) of Chapter II. Rights disputes must be accessible for at least 30 days and no longer than 60 days, in accordance with rule 8.8.2.

Yes, SEBI implemented a PAN card prerequisite for IPO applicants in July 2006. Documents submitted without a PAN number or with an erroneous PAN number are considered defective applications and are not considered for IPO distribution.

It is highly recommended that you double-check your PAN card details before submitting the IPO application form. If you are finishing the IPO register through an online stock dealer, ensure that the information he has is correct.

Advantage: You can apply for allocations worth more than Rs 1 lakh and you might do so with a higher chance of success than a regular bidder.

Disadvantage: of book-build IPOs is that private individual investors receive 35% of the shares (the remaining 50% are reserved for qualified institutional buyers) while non-institutional bidders are only allocated 15% of the overall issuance size. Due to its much smaller size, the non-institutional category typically has a much greater (than in the retail category) oversubscription rate and a lower share allotment.

Yes, a retail individual investor can bid for more than Rs 2 Lakhs in an IPO by applying in the 'Non -Institutional Investors' category. There is no upper limit for bidding amount in 'Non-Institutional Investors' category.

Retail Individual Investor (RII) HUFs, and resident Indian individuals who register for less than Rs 2 lakh in an IPO fall under the RII group.

A minimum of 35% of the Amount is set aside for the RII group.

The RII group is open to NRIs and HUFs who are applying for an IPO with less than Rs 2,00,000.

Category RII permits bids at the cutoff price

Non-institutional bidders (NII) The NII group is guaranteed a minimum of 15% of the Amount.

An HNI comes into this group if they apply for more than Rs 2 lakh in an IPO.

Once an offer has been submitted, non-institutional buyers cannot take it back. The offer amount could be changed by them.

At the cut-off price, NIIs are ineligible to offer.

No SEBI registration is required for NII.

Qualified Institutional Bidders (QIB's) The QIB category accepts applications from public financial organisations, private banks, mutual funds, and foreign portfolio investors, among others. Institutions must be registered with SEBI in order to submit under this group.

Reserved for QIB's Allotment Base - Proportionate is 50% of the Offer Quantity.

The majority of QIBs represent modest investors who use mutual funds, ULIP plans from insurance firms, and pension plans to make investments.

According to SEBI regulations, QIBs are not permitted to cancel their offers after the end of the IPOs.

QIBs are not permitted to submit bids at the cutoff price.

Anchor Investor A qualified institutional buyer (QIB) who submits a book-building application for a valuation of at least Rs 10 crores is referred to as a cornerstone investor in a public offering.

Up to 60% of the QIB Category can be allocated to Anchor Investors;

Anchor Investor Offer Price is decided separately.

Anchor investors has different Anchor Investor Bid/Offer Period.

The minimum application size for each anchor investor should be Rs 10 crores. No merchant banker, promoter or their relatives can apply for shares under the anchor investor category. In offers of size less than Rs 250 crores, there can be a maximum of 15 anchor investors, but in those over Rs 250 crores, SEBI recently removed the cap on the number of anchor investors.

Anchor investor's are not eligible to bid at cut-off price.

The company responsible for creating the Book Building Public Edition chose a price range for it. Typically, the price band has a higher level and a lesser level.

Floor price is the lowest price (lower level) at which an Offering can accept offers.

Buyers may offer any price within the price range that has been established by the business for the Book Build IPO. Retail buyers in the Book Build procedure also have the opportunity to select the "Cut-Off" price for bidding.

Cut-off Price When an investor agrees to a "cut-off price," they are agreeing to pay whatever the business ultimately decides to charge for the book. When making an offer at the cut-off price, the retail investor must pay the highest price. The leftover sum is returned to the retail investor if the business determines the final price will be less than the maximum price requested for the IPO.

A fixed price technique, book-building method, or a mix of the two can be used to make an initial public offering.

The following are the differences between shares sold through book building and shares offered through a regular public offering (Source: BSE):

Primary Market To generate money, issuer companies sell their shares on the primary market, where investors can purchase them straight from the business

Secondary Market After stocks are first made available to investors in the primary market (through IPOs, for example), they are posted on stock exchanges, and then they are sold on the secondary market. Equity marketplaces and loan markets make up the secondary market. While the primary market is how businesses join the secondary market, the secondary market is a venue for trading listed securities.

Shares of a business that has already gone public are issued in a follow-on public offering or FPO. A business that is already openly traded and has undergone the IPO procedure can issue extra units of equity through an FPO.

The business going public appoints independent financial institutions as lead managers. To handle large IPOs, companies select more than one lead manager. Both of them are referred to as book-running lead managers.

Their primary duties include starting the IPO filing, assisting with road shows, producing the draft offer document, and getting SEBI and stock exchange approval, as well as assisting with the company's stock market listing.

One important entity for handling IPOs is the registrar of public issues. They are independent financial institutions that have stock exchange and SEBI registrations. They are chosen by the firm that plans to go public.

The basic duties of an IPO registrar include processing IPO applications, allocating shares to applicants in accordance with SEBI regulations, processing refunds by ECS or check, and transferring allotted shares to investors' Demat accounts.

There are two potential outcomes:

1. Multiple oversubscriptions for IPOs in the retail sector

In such a situation, regardless of how many lots you applied for, you will only be selected for a maximum of one lot, and that too using a lottery mechanism depending on how many times the retail category of the IPO was subscribed to. Therefore, you shouldn't submit applications for more than one lot in a strong issue that is likely to be significantly overloaded.

2. IPO may not be completely subscribed.

In an initial public offering (IPO) when subscription is less than or equal to one time in the retail category and which may not prove to be extremely popular, you will receive the same number of lots as you applied for (maximum shares of Rs 2 lakh as that is the maximum limit in retail category). However, there is minimal demand for IPO shares, and prices might fall on the day of listing, making this position highly risky.