What is IPO in Share Market? and How Initial Public Offering Works in India

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What is IPO in Share Market? and How Initial Public Offering Works in India

Do you know the meaning of IPO? Here is the Simple Answer: An IPO is abbreviated for Initial Public Offering in the stock exchange market of India. Initial Public Offering is a medium through which a private company turns into public by issuing its very first shares in the stock market. Generally, the medium-sized companies issue Initial Public Offering to grow their funds for expansion of their business.

How Initial Public Offering Works in India

The IPO process begins as a company file for registration with SEBI. After necessary studies by the SEBI, the value and the date of the first public offering of the company. Thus, the process of Initial Public Offering allows the private company to get the stock exchange listing.

Why Company Chooses to Go Public

IPO is the way to go public for a private company. To gain exponential growth, a huge investment is required. The private companies generally need short of capital with few shareholders. IPO allotment enables a company to issue shares publicly. The huge capital derived from public investment allows the company to invest in expansion. The main reason for going public is to raise capital for investment in growth and expansion of the business.

How to Apply for an IPO in India

A company needs to apply for IPO through a prescribed form. The IPO application forms are available to download from the official websites of BSE and NSE. The Initial Public Offering form should be filled up and submitted with required payment through DD or cash or cheque well before the closing date. The company also hires an investment bank to frame an underwriting agreement with Initial Public Offering details. The Securities and Exchange Commission verifies and approves the IPO application and allots a date for Initial Public Offering allotment.

Read More: How to Apply for an IPO Online in India

Advantages & Disadvantages

There are several pros and cons of an IPO as every coin has two sides.

The best benefit of an IPO is an opportunity to raise funds through a large group of investors. The cost of capital comes up to very low compared to other ways of raising capital. Going public gives the company a larger exposure and reputation in the market. It has many indirect advantages like attracting skilled employees through ESOPs.

However, the company also gets increased responsibilities against the benefits. A public company needs to disclose its financial reports, balance sheet, and other business information. There is a risk if the prices of the IPO are not accepted by the Stock Market. It may lead to lower stock prices immediately after the initial offering.

How to Invest in the initial public offering

If you are an avid investor and confused about whether you should invest in Initial Public Offering or not, here is a tip for you. Focus on the quality and reputation of the company. Picking up the low-priced IPOs recklessly is not a good idea anytime. As a cautioned investor, you should select the good stocks of IPOs from the secondary market. If you are a seasoned investor ready to take the risk, going otherwise is also recommended. Sometimes, the prices crash to an amazingly low level after the initial hype over the initial public offering.

Read More: Tips to Invest In IPO

Investing in IPO is always been interesting as only established and reputed companies are entering the market now. So, next time when you are browsing through the IPO announcements by any company, use our tips and information. Do remember to visit us for more information about the stock market.

By, Trading Fuel


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