Share Market for Beginners : IPO


PROCEDURE FOR IPO (INITIAL PUBLIC OFFERING)

The process of IPO is controlled by SEBI (Security exchange board of India). SEBI is a capital market regulator. As RBI (Reserve bank of India) regulates all banks same SEBI regulates the capital market.

If any company wants to appeal for IPO, it has to hire some investment banks and then investment banks guide the company about IPO and prepare a DRHP (Draft red herring prospector). DRHP mainly contains the company’s business history, History of financial statements, information of management and promoters of the company and future plans of the company, etc.

Now the company submits DHRP to SEBI, then SEBI verify the information of the company if SEBI finds any problem or missing information in a prospectus then it informs to company and if not then they approve the company to issue their IPO. So, let’s assume the company gets approved to issue its IPO.

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Now there are of two types :
1) Fixed-price
2) Book building

Fixed-price

In fixed price IPO company decides a fixed price on which the IPO will publish and all investors should purchase it on Fixed price. Let say any company sets a price of Rs.500 for its IPO then every investor should pay Rs.500 to subscribe to that.

Book building

In this, the company decides a price range like Rs. 200-210 so the maximum bid by an investor for that will be the price to subscribe to the IPO.

The lowest price in that range is called the floor price. For example- 200 is the floor price

The highest price in that range is called cap price. For example- 210 is cap price.

It generally open 3 days for the subscription.
In this process, the company raises 1000 crores for a 20% stake.

By this, investors get ownership in that company and the company gets money to grow their business.
After this IPO process company’s shares will issue to the investors and then the company list on NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) after this anyone can easily buy and sell the company’s shares. Now it’s become a public listed company.

If you are interested in any company and want to buy shares of that company then you should have a Demat and trading account. We will explain that process in the next post till then stay connected.

Thanks for reading.

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