What is IPO? Initial Public Offering called as IPO. An IPO can be a key event for the private companies. It transforms private companies into a publicly traded companies in stock Exchanges. This IPO process allows companies to raise capital by selling stocks to the public. But in this blog article we will learn about what is IPO ?, Pros & Cons of IPO ?, What should we consider before applying for an IPO ? And why companies go for an IPO ?
IPO is a method for Private Companies to raise money from public (Retail Investors), Qualified Institutional Buyers (QIBs) and Non-Institutional Investors (NIIs) by selling their stocks on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), and allowing public investors to buy ownership of the company through IPO & stocks. Investing in IPO can be risky for Investors.
Why Companies Go for IPO ?
There can be many reasons for companies to go public. Here are some reasons:-
Raising Capital:- Mostly companies go for an IPO to raise capital for their business expansion so they can grow their business. Companies need more capital for their new projects, research and development (R&D), and various other needs. This is one of the reasons they raise capital from the public. Additionally, if a company has excessive debt, it may opt for a public IPO to raise funds and pay off its outstanding debt burden.
Liquidity:- If company list their IPO to stock exchanges, then it’s very easy for their existing investors and new investors to sell and buy their stock with high volume. It all happened with exchange liquidity.
What is IPO Pros and Cons:
Here are some Pros & cons of investing in IPO’s:-
| Pros of IPO | Cons of IPO |
|---|---|
| 1. Capital Raise:- Help companies to expand and pay-off their debt. | 1. High Risk:- Overpriced IPO can drop after listing. |
| 2. Future Funding:- Easy to raise additional fund in future. | 2. High Volatility:- IPO stocks can be very fluctuating that leads to uncertainty. |
| 3. High Valuation:- A successful IPO can increase company valuation. | 3. Regulatory Burden:- Public listed companies has regulation & legal burden. |
| 4. Liquidity:- Listing IPO in Stock Exchanges can increase liquidity for their investors. | 4. High Cost:- Listing IPO process is very expensive for companies. |
| 5. Transparency:- Companies must follow regulation, and show transparency. | 5. Insider Trading Risks:- Employees or executives may engage in unethical trading practices. |
| 6. Regulated. It is regulated under SEBI. | 6. Time-Taking Process:- Listing IPO can take months or year. |
Things to Consider Before Applying for an IPO ?
Before investing in IPO, you should consider some key factors of IPO. Here are some factor you should consider before applying for an IPO:
- Understand the company business model, product, services and its year-on-year revenue growth.
- Check the company financial Health like, balance sheet, Profit & loss, Cash-flow and with that check their competitor.
- Check IPO Issue Size (Fresh Issue, Offer for Sale)
- Check IPO Subscription data, if it’s multiple time (X) oversubscribed, then it’s a green flag for IPO investors.
- Check IPO Grey Market Premium (GMP). A higher GMP indicates listing gain in IPO.
- Before apply for an IPO, read the companies DHRP & RHP. If you don’t to know how to get the DHRP & RHP.of IPO you visit Stock Exchange (NSE) and (BSE)Official page to get that DHRP & RHP.
- Check IPO valuation by their price band and compare that with their sector and competitor companies.
How to apply for the IPO ?
There are many ways to applying for the IPO’s, but here are two best way to applying for the IPO
- ASBA(Application Supported by Blocked Amount) via Net banking:- You can apply for the IPO using your bank net banking portal, where the required amount for the IPO is blocked in your bank account until you get the share allotment.
- UPI via Stockbroker:- You can apply for the IPO using your brokerage platform like Angle One, 5paisa, Zerodha Kite, Grow and Upstox etc.
If you don’t have a account in these Brokerage platform you can open your account
1. UPSTOX
2. 5PAISA
1. Zerodha
Summary
I think my blog article about “What is IPO” is to help you in some way to understand about what is IPO, How it works, what should we consider while applying for an IPO and How to apply for an IPO. If you have additional information about what is IPO and suggestion about my blog, you can comment below, or you can Contact us about any queries
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