KNOWLEDGE DESK - IPO

An Initial Public Offer or IPO is the first sale of a company’s shares to investors on a public stock exchange. While IPOs are effective at raising capital, being listed on a stock exchange imposes regulatory compliance and reporting requirements.

When a shareholder sells shares it is called a “secondary offering” and the shareholder, not the company who originally issued the shares, retains the proceeds of the offering. To avoid confusion, it is imporatnt to remember that only a company which issues shares can make a “primary offering”. Secondary offerings occur on the “secondary market”, where shareholders (not the issuing company) buy and sell shares to each other.

There are two types of IPOs. These are listed below :

• Fixed Price Issue – In this case, the issue price is pre ascertained by the issuer.
• Book Building – In this case, an indicative price range is declared by the company for a public offer of its equity shares. Interested investors place bids within this price range for the quantum of securities they want to subscribe to. Prospective investors can revise their bids at anytime during the bid period, that is, the quantity of shares or the bid price or any of the bid options. Usually, the bid must be for a minimum of 500 equity shares and in multiples of 100 equity shares thereafter. By recording the bids (quantum of shares ordered and the respective prices offered) received in a “book”, the issuer makes an assessment of the demand for the securities proposed to be issued. After the bid closing date, the book runner and the company fix the issue price and decide the allocation to each syndicate member. Thus, book building method helps in optimum price discovery for the security.

Primary Market refers to a market which provides the channel for creation and sale of securities. Primary market provides an opportunity to investors to apply & own stocks issued by the corporate (as well as the government) through an IPO (Initial Public Offer). A corporate raises capital from the public to meet its expansion plans or discharge financial obligations.

The resources in this kind of market are mobilized either through the public issue in which anyone can subscribe for it, or through the private placement route in which the issue is made available only to a selected group of subscribers such as banks, FIs, MFs and high net worth individuals. In private placement, the stringent public disclosure regulations and registration requirements are relaxed since these securities are allotted to a few sophisticated and experienced investors,. The Companies Act, 1956, states that an offer of securities to more than 50 persons is deemed to be public issue.

Secondary Market refers to a market where shares are traded after being initially offered to the public in the primary market. It is a market in which an investor purchases shares from another investor through stock exchange. Majority of the stock trading is done in the secondary market. The secondary market enables participants who hold securities to adjust their holdings in response to changes in their assessment of risk and return. They also sell securities for cash to meet their liquidity needs.

We will soon be starting the facility of online IPO application which will enable you to enjoy a hassle-free experience with no botheration to fill tedious, lengthy forms, no requirement to sign cheques or physically deliver the form to the collection centre.

Currently, to apply for an IPO, you can collect the IPO Application Form directly from your nearest Lakshmishree branch. To get a list of our branches, please Click here.