An Initial Public Offering (IPO) in the stock market when a company first offers shares of stock to the public. This allows the company to raise capital by selling ownership stakes to investors, and it also allows the general public to buy shares in the company and become shareholders. The process of going public in India is regulated by the Securities and Exchange Board of India (SEBI) and companies must meet certain requirements in order to be able to do an IPO.

Types Of IPO (Initial Public Offering)

• Fixed Price Offering Offerings for a fixed price are generally simple. Prior to the initial public offering, the company discloses the price. As a result, when you participate in an IPO with a set price, you consent to paying the full amount.
• Book Building IPO A book-building IPO is a process used to determine the price at which a company’s shares will be offered to the public during an Initial Public Offering (IPO)

Why Do Companies Go Public

Company’s decision to go public lies a fundamental need: capital. As a private entity, a company’s access to funds is limited to its revenues, debt financing, and investments from venture capitalists or angel investors. However, as a business grows and its ambitions expand, these sources often prove insufficient to fuel its growth plans and ambitious projects.IPO Unlocks a vast pool of capital from public markets. By offering shares to the general public, a company can raise substantial sums of money, providing the financial firepower necessary to fund research and development, acquire competitors, expand into new markets

How to Invest in an IPO

Open Demat Account You cannot apply for an IPO if you don’t have a Demat account open a Demat account with any (SEBI)authorized broker by submitting your Aadhaar Card, PAN Card, proof of identity and address. 

Selecting the IPO Start by choosing the IPO you wish to buy. Read the company’s prospectus to gather the required information. It is available on the Securities and Exchange Board of India’s (SEBI) website. The document helps you understand the company’s business plan and objectives

Make Bidding The prospectus outlines a specific lot size for placing bids, which indicates the minimum number of shares you must bid for in your application. Additionally, the company establishes a predetermined price band within which all bids must fall

Key Points to Remember

• Lot Size: This is the minimum quantity of shares you can request in your bid
• Price Band: Bids must be made within the limits set by the company.
• Bid Flexibility: You have the option to modify your bid at any time; however, please note that the funds required for your bid will be temporarily blocked during this process.

Make Payment A Bank Account is required to make payment for the applied shares. This is done via the Application Supported by Blocked Amount (ASBA) facility.

Allotment of Shares When shares are offered in the market, they are given out based on how many people want to buy them. Here’s how it works:

• No Shares: There’s also a chance that you might not receive any shares at all
• Money Release: No matter the outcome, the bank will return your money after the Initial Public Offering (IPO) starts

Factors to Consider Before Investing in an IPO

• Company’s Financial Health Look at the company’s revenue, profit margins, and debt levels. Example: (If a company consistently increases its revenue and maintains healthy profits, it may be a positive sign. On the other hand, high debt levels could pose risks)
• Business Model Understand how the company makes money and its sustainability. Evaluate the demand for such services or product and the potential for growth.
• Management Team Assess the experience and track record of the company’s leadership because a strong leadership, contributing to its success
• Prospectus Analysis Study the IPO prospectus for detailed information and understand its business segments, risks, and financial details.
• Growth Prospects Evaluate the company’s potential for expansion and market trends
• Market Conditions Assess the overall market sentiment and economic conditions During a bull market, companies might be more confident about going public, but in a bear market, IPOs may face challenges.