We’ve all been hearing the success stories of India’s new IPO listings with stocks like IRCTC, Ujjivan, Happiest minds, and many more. Almost 84% of Investors and Industry experts consider investment in IPOs today with more preference to primary markets than the secondary markets.
With almost all the IPOs going oversubscribed in the recent market trends, there’s a vast hype accumulated for IPOs among the investors and market players today. After reading this article, you will be well-versed with What is the Initial Public offering? And what is actually the Initial Public offering process?
What is an Initial Public Offering in the Public Sector?
The Initial Public Offering (IPO) is a process where the new shares of a Private Corporation are listed on the stock market for the first time and are issued to the public for first-hand subscriptions. IPO is facilitated for public issuance to raise capital from the public investors in a primary market.
A company is a private organization before IPO, which is run by private investors, venture capitalists, family owners, founders, and angel investors. Once it goes public through an IPO, the organization becomes public as it then acquires funds and investments from local and public investors.
A company listing for IPO has to clear major processes and rigorous regulations by the SEC (Securities Exchange Commission) and also should have strong fundamentals and valuations to meet the listing requirements effectively. IPO India listing involves a 7-step process of the public issue to launch an IPO successfully.
Steps Involved in the IPO Process
Start with Hiring an Investment Banker
A company going public through IPO has to start with taking assistance and guidance from the team of Underwriters and investment bankers. This team will study the financials of the company, assess the assets and liabilities, and then fulfil their financial requirements. An underwriting agreement will be framed and signed, describing the details involving the amount to be raised and the securities to be issued.
Register with the Securities Exchange Commission (SEC)
The underwriters, along with the company, then files a registration statement that mentions all the financial data and business plans of the company regarding how the company will be utilizing the raised funds. The Registration statement should be compliant with the SEC’s stringent regulations that ensure and mention all the financial details a potential investor should know.
Drafting of the Red Herring Document
The Red Herring document contains the probable price estimate per share, the public involved, and other important subscription details. This document is drafted as an initial prospectus which actually tests what it is going to be like for the potential investors.
Marketing of the Upcoming IPO
Once the listing regulations comply, the company then goes on a rip-roaring campaign of promoting the IPO around the country and its potential investors. The executives of the listing company promote their IPO with various facts and figures to develop positive interests among the public.
Pricing of the IPO
The price band is then fixed depending on whether the company wants to float a fixed price or go with a Book building issue. Floating a fixed price would have a fixed subscription price mentioned in the document, whereas the Book building issue price will have a price band between which the investors can bid.
The company also decides which stock market it will list down its shares and the number of shares to be sold. With the coordination of the SEC, the company announces its registration statement to begin first-hand share purchases.
Making it Available for the Public
A date is planned when the company issues the prospectus and accepts application forms from the public through online as well as offline mediums. Public investors can get this form from their respective brokers and designated banks. These Public investors are usually availed a time of 5 working days to subscribe for the IPO.
Going Ahead with the IPO
Once the IPO is finalized with receiving applications, the underwriters and the other stakeholders then decide the allotment of the shares. Shareholders are allotted with all the shares applied for unless the shares go oversubscribed. The oversubscribed shares are then rejected and refunded back.
The allotted shares get credited to the Demat accounts of the selected shareholders. Once the company is done with the share allotment, the company becomes ready to start trading of shares on the stock market.
Following the SEC regulations and complying with all the financial descriptions and transparency that a potential investor should know. With new IPOs making a mark in the current headlines, it looks to become a potential question in the current affairs section for the coming IAS and UPSC exam.
The IPO UPSC questions might enter the General knowledge and Current affairs section in the coming UPSC exams. UPSC pathshala has numerous articles that will help you as an aspirant to clear doubts about various subjects. Visit our website to know more.