What is IPO?

The journey to the stock exchange may at times be very exciting, more so for an IPO. IPO or initial public offering of first-hand shares by the company to the general public. This blog tries to explain, right from IPO basics, benefits, regulations, and investor types and terms like DRHP and RHP.

What is IPO? ; Meaning, Definition, Types, Process

The stock market offers some of the most exhilarating opportunities to grow and create wealth. One such thrilling event for companies and investors is an Initial Public Offering. An IPO is when a company issues its shares to the public for the very first time, thus listing itself in the stock market.

This blog thus covers what an IPO is, its benefits, and regulations, so that you may be better informed and prepared to handle this most important of all financial events.

IPO

IPO stands for Initial Public Offering. It is the moment when a privately held company offers its shares to the general public for the first time through the primary market. The primary market, otherwise known as the new issue market, is a place where the security creation or issuance is done directly by issuers and henceforth opened for trading in the secondary market. An IPO transforms a private company into a public one by selling its shares to the public.

How does an IPO work?

An IPO starts when the company chooses an investment bank to advise and underwrite the process. The investment bank is responsible for determining the IPO starting price, managing the registration with SEBI, and marketing the shares to possible investors. After the shares have been offered, they are then traded on the stock exchange, thereby moving from the primary to the secondary market.

Primary & Secondary Market

The primary market is where newly issued stocks and bonds are sold by the issuer directly to investors. Once issued, the security commences trading amongst investors in the secondary market. The latter offers liquidity and provides the investor with a platform to buy or sell shares of the same stock anytime, influencing price by demand and supply forces.

Get all updates about upcoming, current and listed SME and Mainline IPO on IPO JI app and website.

Categories of IPO

Mainline IPO (Mainboard IPO)

A Mainline IPO, also known as a Mainboard IPO, is issued by large companies with a long track record and which have satisfied the eligibility criteria prescribed by SEBI for an IPO. The minimum paid-up capital for a Mainboard IPO after the issue would be Rs 10 crores.

For example, the 2021 IPO of Zomato was a Mainboard IPO. The food delivery giant raised Rs 9,375 crores against the minimum required capital. It was an incredible opportunity for investors to have a stake in one of India's fastest-growing companies.

SME IPO

SME IPO is a public issue for small and medium enterprises or start-ups. The post-issue paid-up capital of SME IPO shall not exceed Rs. 25 crores.

One example of an SME IPO is the 2021 IPO of Basilic Fly Studio Limited. Basilic Fly Studio Limited is a visual effects (VFX) studio headquartered in Chennai, India with subsidiaries operating in Canada and the UK. This company looked to raise Rs 66 crores approx. targeting smaller investors who wanted to give a growth platform to SMEs. It was a chance for the investors to get into the scheme of things by investing in an upcoming business and reaping hefty rewards in return for their investments.

Types of Investors

Retail Investors

They are the type of investors who are individual investors, and purchase shares for personal accounts, and not for another company or organization. They always invest comparatively smaller amounts than that by institutional investors.

Qualified Institutional Buyers (QIBs)

QIBs invest a lot of money in the stock market, examples of which include mutual funds, insurance companies, pension funds, etc. They are highly interested and greatly helpful during the IPO process because of their huge investment capacity. For example, when LIC went public in 2022, the biggest buyers for its shares were institutional investors like the State Bank of India and Life Insurance Corporation itself. Their participation lent strong support to LIC's ground-breaking IPO.

High Networth Individuals (HNIs)

HNI denotes High Networth Individuals, which is a category of investors in an IPO who apply for shares with a larger investment amount than the usual category, normally above ₹2 lakhs in an IPO. Unlike retail investors—who are limited to smaller investments—HNIs have no cap on the maximum amount of investment.

Check Upcoming IPO, Current IPO, and IPO Allotment Status via IPOJI App and website.

How to check for upcoming IPOs?

Investors who are considering investing in an initial public offering (IPO) have multiple ways to be informed about the IPO. Among them are IPOJI.COM and the IPO JI App.

The easy procedures to check for an impending IPO via the IPO JI App are as follows:

Open the Play Store or App Store and install the IPO JI app.
Sign up for yourself,
All of the listed, upcoming, and current initial public offerings (IPOs) are there in front of you.
To view the specifics of the IPO you want to pursue, click view.

Using the IPO JI app, you can easily submit an IPO application with a hassle-free one click.

Apart from this you can browse stock exchange websites and get the news for upcoming IPO. Some stock exchange websites have a dedicated page/section for IPO where investors can get news and updates about upcoming IPO.

What is IPO Timeline?; Dates of Opening & Closing, Allotment Day, Date of Refund, Credit to demat Account Date, Date of Listing

What is the IPO timeline?

The IPO timetable is the set of operations that must occur between applying for an IPO and having it allotted to your name, along with other related steps. The following divisions make up the procedure, which is often referred to as the IPO calendar:

Dates of Opening and Closing: These are the dates on which IPOs' bidding processes open and close. Any interested parties may apply or submit a bid within these times.
Allotment day: The IPO registrar will reveal the allotment status to the public on the allotment day.
Date of Refund: The money you spent to apply for the IPO cannot be withdrawn since the application amount is locked. The day that the reimbursement for those who did not receive the IPO is started, based on the IPO's distribution, is known as the refund date.
Credit to Demat Account Date: This refers to the time when, before the business's shares are listed on the market, you receive credit for the applied IPO shares in your Demat account. It varies depending on the company.
Date of Listing: IPO listing is another name for it. At this point, a company's shares are formally listed and open for trade on the relevant stock exchanges (secondary market).

For example, the IPO timeline of Zomato was as follows: Filing the DRHP with SEBI in April 2021, roadshows in May, declaration of the price band in July, the opening of bidding on July 14th, and finally the listing on the stock exchange on July 23rd.