What is ipo in share market | IPO in stock market
Today We talk about What is IPO in the share market– When a private company lists its equity shares within the share market to grow its business and lift funds from the general public, then where does it go to (Initial Public Offering) IPO.
Once an organization gets its shares listed, then it becomes a non-public to a public company, after which its shares are often easily bought and sold within the market.
Every month many companies come to IPO and a few of the IPOs is good, due to which investors invest their money in it and obtain a much better return.
IPO Initial public offer?
When any company needs money, it goes to the general public, banks, or financial institutions and receives funds from them.
There are two ways of getting money from the general public
1. By receiving funds, they must be made a shareholder within the ownership of the company, the capital or funds that are collected during this way is named Share Capital.
2 If the capital is taken from the general public is taken into account as a loan, that cash should be returned at a particular time, it’s called Debentures or Loan Capital.
When an organization wants to raise funds from the general public in equity, then it issues its general shares to the general public for the primary time by getting listed within the stock market, this process is called Initial Public Offering (IPO).
Those who want to buy the shares of the company can apply and after receiving all the applications, the corporation distributes the shares among the applicants in exchange for the capital.
In this way, the shares of the company reach the public and therefore the company gets the capital, after which these shares are often bought and sold within the market.
Whenever a company brings its IPO within the market, some special technical terminology is employed while bidding it, which are as follows:
Let us know it one by one
(Price Band): Generally, the price band is the range within which you’ll bid for an IPO.
(Bid Lot): Bid lot refers to the minimum share quantity consistent with which or its multiples, the customers need to bid for the IPO.
(Registrar) – The registrar is that special company body that’s given the responsibility associated with the work of IPO. He takes care of getting the investments are done, refunding the customer’s money, and therefore the entire IPO process as per SEBI.
(Issue size)- It refers to the overall quantity of shares on which you’ll bid.
QIB – The share of shares that are put up for bidding by the investor entities, is named QIB.
NIB – The share of shares that are put up for bidding by non-investing entities are named NIB.
Retail – The number of shares that are put up for the bidding of retail investors, is named retail.
Listing – The listings on which the IPO opens and is available for trading are called listings.
IPO Guide | How to invest in IPO
Here I talk about 2 categories of people who invest in IPO.
In the first category, the people come who got IPO on listing day and after some gain on that day, they sell their position and book their profit on the same day.
In the second category, the peoples come who gets stock when the company is listed in the stock exchange, do not sell their position on the same day and wait for the long term to gain from the company. Those people are called long-term investors, who believe in the company’s business model and its promoters, They expect from stock will give more returns in the future.
Let’s go to see which category is good to follow you so you can get betters returns.
in the first category, we saw that after getting IPO when the company was listed on the stock exchange and sold their stocks on the same day this is called speculation.
so let’s see which category is best for you investing or speculation.
we compared the returns of IPO according to the above categories.
we see the returns given by the first category as shown below.
2018 = +180.7%
As we saw this strategy gave good returns in history. This strategy we called speculation works even during recession time.in this strategy. This strategy depends upon the probability of listing gain and deciding to apply for IPO and sell on the same day of listing.
Now we see the returns given by the second category as shown below.
Conclusion – As we see both categories gave good returns in past but we don’t recommend category one i.e speculation if you want to follow the category take more research about IPO. but in my opinion, you will focus on investing in the stock market where good returns will get because their compounding works.
Advantages of IPO
Through IPO, it’s informed that a corporation is performing well and therefore the company goes to figure on more new projects by raising funds and needs to extend its business.
Various sorts of Mergers and Acquisitions payments are often made with the help of shares which get eliminate cash transactions.
With the help of an IPO, any company can hire good employees, and by offering shares to the staff during IPO, the company also can hire new people at low wages.
When the share price rises, the promoter’s net worth also increases if the promoter owns shares within the company. This provides the promoter the fruits of his hard work.
Disadvantages of IPO
The process of IPO is extremely costly for a company. The leader of the corporate pays more attention to the IPO, which may make a difference within the routine work of the corporate. Investment banks also charge a hefty fee for providing their service.
The owners of the company cannot sell their shares immediately after the launch of the IPO as doing so may cause a fall within the price of the company’s shares.
The public gets to understand tons about the corporate i.e company.
Thanks For Reading.