Initial Public Offering (IPO) in India:
An Initial Public Offering (IPO) is the process by which a privately held company offers its shares to the public for the first time, allowing investors to become shareholders in the company. It is a significant event in the life cycle of a company as it transitions from being privately owned to publicly traded on the stock exchange.
How IPO Works:
- The company appoints investment banks as underwriters to manage the IPO process.
- The underwriters help determine the IPO price, draft the prospectus, and market the offering to potential investors.
- Investors can apply for shares in the IPO through their broker or online trading platforms during the subscription period.
- After the subscription period closes, the underwriters allocate shares to investors based on demand and other factors.
Who Can Apply for IPO:
Any individual, corporate entity, or institutional investor with a demat account and a trading account can apply for shares in an IPO.
Mechanism Behind IPO:
- The company files a draft prospectus with the Securities and Exchange Board of India (SEBI) detailing its business operations, financials, and objectives.
- SEBI reviews the prospectus and provides approval for the IPO
- The company conducts roadshows to generate interest among institutional and retail investors.
- On the IPO launch date, the company's shares are made available for subscription through the book-building process.
Allotment Procedure:
- In the book-building process, investors bid for shares at various prices within the price band specified by the company.
- The final issue price is determined based on the demand generated during the subscription period.
- After the allocation, the underwriters notify successful applicants, and shares are credited to their demat accounts.
- On the IPO launch date, the company's shares are made available for subscription through the book-building process.
Share Allocation to Demat Holders:
- Shares allotted in an IPO are credited directly to the demat accounts of successful applicants.
- Demat account holders receive an allotment advice confirming the number of shares allocated to them.
Other Mandatory Details about IPO:
- Investors should carefully read the prospectus and understand the risks associated with investing in the IPO.
- It is essential to have a demat account to apply for shares in an IPO.
- Investors should have sufficient funds available in their trading account to cover the IPO application amount.
- The IPO process may involve multiple rounds of bidding, and investors should monitor updates from the company and underwriters during the subscription period.
- After the IPO, the company's shares are listed on the stock exchange, and investors can buy or sell them on the secondary market.