In This Article You Are Going To Learn About What Is IPO ?, Complete IPO Process Like Approaching A Merchant Bank, DRHP, Details Of IPO And Things To Know Before Applying An IPO Like Grey Market Premium, How To Increase Chances Of Getting An IPO.
What Is IPO ?
IPO Stands For Initial Public Offering. The Company Offers Its Shares For Some Amount To The Public. To Raise Money For Their Business Expansion Or Any Other Reasons.
In Simple Words, Companies Raise Money Through IPO For Their Business Expansion Or To Reduce Their Debts.
Mostly Well Performing Companies Or Well Established Companies Only Try To Raise Money Through IPO. Because Every Company Needs A Minimum Of 90% Subscription.
For Example, If A Company Want To Raise 500 Crores Through IPO. The Share Price Is Set At 1000 RS Then There Will Be Total Of 50 Lakhs Shares. So At Least 45 Lakhs Of Shares Means 450 Crores Needs To Be Subscribed By The Public. Then Only The Will Be Listed On Exchanges Like NSE And BSE.
Complete IPO Process
Approaching A Merchant Bank
Any Company If They Want To Start IPO Process To Go Public, They Need Approach A Merchant Bank, Merchant Banks Are Not Only For IPO. They Also Provide Services For Businesses. They Also Provide Marketing And Financial Services.
The Company Goes to Merchant Bank With Full Details About The Company.
DRHP Stands For Draft Red Hearing Prospectus. After The Company Approaching a Merchant Bank With Full Details About Their Company. The Merchant Bank Will Prepare DRHP.
DRHP Is Very Important In The IPO Process. DRHP Contains Complete Details About The Company Like About The Company, Past Performance Of The Company, Loans Of The Company, Revenue, Their Business Presence Like In India Or Globally, Why Are They Raising The IPO, How They Spend The Money Raised Through IPO, Risk Factors Of The Company If Any.
The DRHP Needs Have Every Details According To SEBI Regulations. DRHP Is Designed By Merchant Banks.
After Completing The DRHP. They Send It To SEBI ( Security Exchange Board Of India ).
SEBI Goes Through The DRHP And Checks Is The Details Mentioned In The DRHP Correct Or Not. SEBI Will Approve If The DRHP Is Correct And It Is Following All The Regulations Of SEBI. If There Is Any Mistake In DRHP Or It Is Not Following Any Regulations Of SEBI. SEBI Will Send Back The DRHP To Merchant Bank.
Then The Merchant Bank Will Modify The DRHP And Send It To SEBI For Approval.
After The Approval From SEBI
After The Approval From SEBI. The Company IPO Is Opened For Public To Apply.
There Are Two Ways For A Company To Release Their IPO.
Fixed Price Issues
In Fixed Price Issue IPO, The Company Will Fix The Price Of One Share. So If Anyone wants To Apply For That IPO They Need To Apply For That Fixed Price Only.
Book Built Issues
In Book Built Issues The Company Will Issue Floor Price And Cap Price. Floor Price Means The Lowest Price At Which One Can Apply For IPO And Cap Price Means The Highest Price At Which One Can Apply For IPO.
According To SEBI Rules, The Difference Between Floor Price And Cap Price Need To Be Less Than 120%.
Most Of The IPO’s Are Book Build Issues. For Example, The Company Price Band For IPO Is 175 RS To 180 RS. Here 175 RS Is Floor Price And 185 RS Is Cap Price.
So We Can Apply The IPO For 175 RS To 180 RS ( 175 RS Or 176 RS Or 177 RS Or 178 RS Or 179 RS Or 180 RS ).
After That Completion Of the IPO Process, The Company Will List On NSE And BSE. Now Public Can Buy And Sell The Shares Of The Company Through Exchanges.
Details Of IPO
After The Approval From SEBI. The IPO Goes Public, The Company Will Release The Details Of The IPO. For Example
|ISSUER :||TATA MOTORS|
|ISSUE OPENS ON :||AUGUST 22, 2021|
|ISSUE CLOSES ON :||AUGUST 24, 2021|
|PRICE BAND :||RS 155 TO RS 160 PER EQUITY SHARE|
|LOT SIZE :||75 EQUITY SHARES AND IN MULTIPLE THEREOF|
|IPO SIZE :||APPROX RS. 1200 CRORES|
|ISSUE SIZE||RS. 1200 CRORES|
|ISSUE ALLOCATION||QIB – 50%; NII/HNI – 15%; RETAIL – 35%|
Firstly Here Issuer Is Company Which Is Going Public Through IPO.
The IPO Will Opens On August 22, 2021, And Closes On August 24, 2021. So We Can Apply For IPO From Aug 22 To 24.
Price Band Means We Can Apply IPO Within The Price Band. If There Is A Heavy Competition For IPO Then We Need To Apply For a Higher Price, In The Above Example It Is 160 RS.
The Priority Will Be Given To The One Who Applies For Higher Price.
Lot Size Mean, In An IPO We Need to Apply In The Multiples Of Lots. From The Above Example If You Want To Apply For IPO You Need To Buy At least 75 Shares. Ant If You Want More You Need To Apply In The Multiples Of Lots Like 150 Shares, 225 Shares.
IPO Size Or Issue Size Both Are Same. It Is The Amount Of Money a Company Raising Through Initial Public Offer.
Issue Allocation: Most Of The Allocation Is Given To QIB, QIB Means Qualified Institutional Buyers. So 50% Of The Issue Size Is Allocated Only To The QIB’s.
For Example QIB’s Include Mutual Funds, Public Financial Institutions, Foreign Investors, Scheduled Commercial Banks, Foreign Venture Capital Investors, State Institutional Development Corporations, Insurance Companies, Pension Funds, etc.
For Retail 15% Is Given. So 15% Of The Issue Size Is Allocated To Retailers. Retailers Are Common People.
For NII / HNI Means Non-Institutional Investor / High Net Worth Individual 15% Is Given. So 15% Of The Issue Size Is Allocated Only For NII/HNI.
Retail Investors Also Comes Into NII/HNI Category If They Applied For More Than 2 Lakhs.
Things To Know Before Applying An IPO
When An IPO Opens You Might See In News Or Somewhere Like 50 Times Subscribes ( 50X ). Means For Example If The Company Issue Size Is 500 Crores, It Was Subscribed 50 Times More, Means 500 Crores X 50. The Company Only Need 500 Crores But They Got Bids Worth 50 Times Of Issue Size.
In Other Words, Higher The Over Subscription Means Higher The Craze For The IPO.
How To Increase Chances Of Getting An IPO
Apply IPO From Different Different Accounts. For Example, If You Are Applying For 5 Lots, Then Apply From Different Accounts Of Your Family Rather Than Applying All Lots From Your Account.
Most Importantly One Mistake Most Of Retailers Do Is, Applying From Different Brokers Of the Same Person Like ZERODHA, UPSTOX, Angel Broking.
But It Will Is Considered As Only One Application Because Our PAN Will Be the Same For All Brokers.
At Last It Will All Depend On Luck. Because They Will Decide Randomly. It’s Like Lottery, More The Applications From Different Accounts Higher The Chances For Allotment.
If You Want The IPO Then Apply For Higher Price. For Example, If The Price Band Is 105Rs To 110Rs, Apply For 110Rs. Because The Priority Is Given To The One Who Applied For Higher Price.
Grey Market Premium ( GMP )
For Example If Any New Famous Movie Of A Big Hero Releases. There Will Be a Huge Craze For That Movie And You Want To Watch The Movie On the First Day Of Its Release. But It’s Very Hard To Get Tickets On the First Day.
To Make Cash Some Members Outside Of The theater Will Sell Tickets For Higher Price. So Many People Want To Buy Tickets. Then He Will The Tickets To The One Who Is Giving Him More Money. We Usually Call It As Black Market.
Similarly Grey Market Also Works Like This.
In Grey Market, Some People Are Ready To Pay Premium Price. For Example, If The Share Price Is 100rs Then In Grey Market They Are Ready To Pay More Than 100Rs, If The GMP Is 20Rs Means In Grey Market They Are Ready To Pay 120Rs Per Share.
Some People Are Ready To Pay, Even More, Higher The GMP Means Higher The Craze For IPO And IPO Will Mostly List At Higher Price.
If GMP is 100Rs Then Shares Will List At 200Rs Which Is 100% More Than the Issue Price.
But Sometimes Grey Market Can Be Manipulated Because If The GMP Is Higher, Then Most Of The Retailer Will Apply For That IPO. So Sometimes Big Players Or The Company Also Will Manipulate Prices In Grey Market.
Understanding GMP By Example
For Example, You Have Applied For IPO And the Share Price Is 100Rs, But Grey Market If Some Members Are Ready To Pay 50 Premium. Means They Are Ready To Pay 150Rs Per Share. This Agreement Is Done Before The Company Lists On Exchanges.
If You Got The IPO Allotment Then You Need To Give Your Shares To the Person You Have a Contract With In Grey Market. He Will Gives You 150Rs Per Shares.
If The Shares Price Lists At 120Rs Also He Will Give You 150Rs Or If The share Price Lists At 200Rs Also He Will 150Rs Only. Grey Market Is Not Official, If Anything Wrong Happens You Can’t Complaint To Anyone Because Its Not Official.
Grey Market Is Managed By Big Brokers Or Operators And Also It Is Limited For Some Cities Only Like Delhi, Bangalore, Mumbai.
In Grey Market Operators Are The Middlemen Between The Buyers And Sellers. It Is Not Official It Is All Depend On Trust.