Primary markets have created a lucrative investment path for investors. As a result, the stock market is witnessing a rising number of retail participants in IPOs.
The IPO full form in the share market is Initial Public Offering. An IPO is the first issue of a company’s equity shares offered to the general public to raise funds. It simply means the company dilutes a part of its ownership to raise the required money. These raised funds are used for various purposes in the company, like growth prospects, debt repayment, etc.
Yes, the IPO full form is the same - Initial Public Offering - in both cases. An investment bank provides underwriting services to the IPO issuing companies and is an intermediary between the company and IPO investors. It buys all or much of the IPO shares from the company and sells them in the market.
The primary market is a platform used by organisations to issue their shares to the public through an IPO. It is the first time the shares of that company are issued to the public. When individuals invest in IPO shares, they purchase them directly from the company in the primary market and receive them in their demat account.
The secondary market is where those issued securities/shares are listed on stock exchanges. After completing the IPO process, the shares are traded among individuals on stock exchanges using their trading accounts.
There are defined categories for IPO investors:
Thus, these features of trading accounts enable traders to benefit from stock market trading.
Yes, a trading account is required as you would want to sell the shares that were allotted to you during the IPO. Without a trading account you will not be able to sell and book profits. If investors want to hold the IPO shares for the long term, it is easy to hold them securely in their demat accounts. They can sell them using their trading accounts if they want to book listing gains.
If an IPO issue is expected to be oversubscribed with an overwhelming response and the company's valuations look decent, you can bid at the upper limit of the price range.
An investment bank helping the company in the IPO process drafts the company prospectus, including the issue size and price range. On the other hand, Registrars are the SEBI-registered entities to finalise the basis of allotment and carry out the allotment process following the company's Red Herring Prospectus.
Book Running Lead Managers (BRLM), also called merchant bankers, are involved in the complete IPO process. They are a key member during the book-building process. They decide the IPO cut-off price based on the market response to the issue.
Generally, an IPO issue is kept open for at least three working days and a maximum of ten working days. Individuals can bid for IPO shares within the decided price band during this subscription period.
After the IPO closes, the company needs to submit the final equity shares to be allotted to applicants and the final issue price. Then shares are allotted to IPO applicants based on the price quoted in their application forms.
The IPO share allotment depends on the market response to it.
When you apply for an IPO, the amount you paid is blocked in your account till the IPO allotment is finalised by the company. If you do not get shares, the same amount will be unblocked, and you will also be notified of the same.
If a stock gets a good response from all four categories of the IPO investors, retail, institutional, QIB, and anchor, the IPO issue will be oversubscribed and get listed on premium. An under-subscribed IPO during unfavourable market conditions due to global and domestic triggers gets listed on a discount.
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