IPO is a way for a company to raise money from investors for its future projects and get listed in a stock exchange. Or an IPO is the mode of selling shares to the public in the primary stock market.
A company raising money through IPO is also called as the company ‘going public'. From an investor point of view, IPO gives a chance to buy shares of a company, directly from the company at the price of their choice (In book build IPO's). Many a times there is a big difference between the price at which companies decide for its shares and the price on which investors are willing to buy the shares and that gives a good listing gain for shares allocated to the investor in the IPO.
From a company’s prospective, IPOs help them to identify their real value which is decided by millions of investors once their shares are listed in stock exchanges. IPOs also provide funds for their future growth or for paying their previous borrowings
The company with help of lead managers (merchant bankers or syndicate members) decides the price or price band of an IPO. SEBI, the regulatory authority in India or stock exchanges do not play any role in fixing the price of the public issue. SEBI just validates the content of an IPO’s prospectus.
Companies and lead managers do a lot of market research and road shows before they decide the appropriate price for the IPO. Companies carry a high risk of IPO failure if they ask for higher premium. Many a times investors do not like the company or the issue price and do not apply for it, resulting in unsubscribed or undersubscribed issue. In this case, companies either revise the issue price or suspend the IPO.
Once the draft prospectus of an IPO is cleared by SEBI and approved by stock exchanges, then it is up to the company to go public to finalize the date and duration of the IPO. The company consults with the lead managers, registrar of the issue, and stock exchanges before decides the issue date.
As per Clause 8.8.1, of SEBI’s (Regulator of IPO) subscription list for public issues shall be kept open for at least 3 working days and not more than 10 working days. In case of book built issues, the minimum and maximum period for which bidding will be open is 3-7 working days extendable by 3 days in case of a revision in the price band.
Yes, since July 2006, SEBI made the PAN number mandatory for IPO applicants. Forms submitted without PAN number or with wrong PAN numbers are considered as faulty applications and they are not considered for IPO allotment.
Yes. It is mandatory to have a DEMAT account to apply for an IPO. The allocated shares are transferred to the investors’ DEMAT account. If you do not provide the correct DEMAT account information, your application will not be considered for IPO allotment.
No, one person cannot apply multiple times through multiple applications for an IPO. It is a rule and if you want to apply for an IPO though multiple applications with same name or same DEMAT account or PAN Number, all your applications will be rejected. However, you can apply in your family member names. But again all eligible family members should have a DEMAT account and a PAN number.
Some companies allow minors to bid for their IPOs and others do not. So it differs from one company to another.
This is a very important question from all IPO investors. If you are applying for an IPO, make sure you retain the following information for future correspondence with the company or registrar of the issue.
1. Photocopy of the application form
2. Photocopy of the cheque issued
3. Application number in case of online IPO submission
Book Building IPOs: Yes. An investor can revise the bid quantity and the price of an already applied Book Building IPO anytime if the issue is still open for subscription. The investor has to fill a revision form and submit it to the syndicate member.
A company coming up with book building public issue decides the price band for the issue. The price band usually contains an upper level and a lower level.
Floor price is the minimum price (lower level) at which bids can be made for an IPO.
Investors can bid for the book build IPO at any price in the price band decided by the company. In the book building process, retail investors have an additional option to choose "cut-off" price for bidding.
Cut-off price means that an investor is ready to pay whatever price decided by the company at the end of the book building process. Retail investor has to pay the highest price while placing the bid at cut-off price. If the company decides the final price lower than the highest price asked for IPO, the remaining amount will be returned to the retail investor.
'Market Lot' and 'Minimum Order Quantity' are two important factors that investors should know while bidding for an IPO.
Minimum Order Quantity, as the name says, is the minimum number of shares that an investor can apply while bidding in an IPO. If the investor wants to bid for more shares, they can apply in multiples of IPO market lot (lot size or IPO bid lot) of shares.
Example:
IPO: Power Grid Corporation of India Limited IPO
Public Issue Price: Rs. 44/- to Rs. 52/- Per Equity Share
Market Lot: 125 Shares
Minimum Order Quantity: 125 Shares
Investor can apply in this IPO as below:
At Rs. 44/- * 125 Shares * 1 Lot = Rs. 5500/-
At Rs. 44/- * 125 Shares * 2 Lot = Rs. 11000/-
At Rs. 44/- * 125 Shares * 18 Lot = Rs. 99000/-
At Rs. 52/- * 125 Shares * 2 Lot = Rs. 13000/-
At Rs. 52/- * 125 Shares * 1 Lot = Rs. 6500/-,
At Rs. 52/- * 125 Shares * 15 Lot = Rs. 97500/-
1.Retail Individual Investor (RII) - In retail individual investor category, investors cannot apply for more than one lakh (Rs. 1,00,000) in an IPO. Retail individual investors have an allocation of 35% of shares of the total issue size in Book Build IPO's.
NRI's who apply with less than Rs.1,00,000 /- are also considered as RII category.
2.High Networth Individual (HNI) - If a retail investor applies more than Rs.1,00,000/- of shares in an IPO, they are considered as HNI.
3.Non-institutional bidders - Individual investors, NRIs, companies, trusts etc., who bid for more than Rs.1 lakh are known as non-institutional bidders. They need not to register with SEBI like RII's. Non-institutional bidders have an allocation of 15% of shares of the total issue size in Book Build IPOs.
4.Qualified Institutional Bidders (QIBs) - Financial institutions, banks, FIIs (Foreign Institutional Investors), and mutual funds that are registered with SEBI are called QIBs. They usually apply in very high quantities