An initial Public Offering is announced by a company that is not listed on the financial markets of the country. Through an IPO and its listing on the financial markets, the company allows the trading of shares for the retail public. In the full form of IPO, P stands for the public. Hence it makes it clear that this allotment status is for the public. Broadly we can say IPO is the trading of securities in the public domain by means of listing on public markets.
Types of IPO
Many people are not aware of anything more than the full form of IPO, yet they invest all their hard-earned money into the IPO, and after booking the loss, they all blame the markets. Hence it is important to understand the basics of IPOs before putting your money in. So, let us understand the types of IPOs available:
Talking about Fixed price offering, it’s the type of IPO where the firm decides on the pricing initially, and the retail public or the one who finds the price lucrative and profitable can buy the desired amount of shares as per their need.
Next, talking about the book building type of IPO, the price band is decided instead of a fixed price. In this price band, the floor price is decided, which is the minimum price, and a cap price is also decided, which is the maximum price. This range is what investors and traders bet on, which moves the grey market price. This price band is not decided by the company but by the underwriters and a few other important people. All these carry out various surveys and other important tasks to figure out this price band. The bids are carried out, and all investors do not get the stocks but only selected people get them.
What is the need to launch the IPOs?
We understand that people invest in these IPOs in order to get the listing gains on the day of listing. Some other people who understand the fundamentals of that company pretty well would like to hold the stocks of the company for a longer term. But the question arises, why do companies apply for the IPO? Why do they file the IPO applications?
So, the primary reason for companies to file IPOs is that they want to raise money for their business. They consider themselves to be a successful company, and at that point in time, in order to raise money to expand their business, they file for IPO. Though the full form of IPO includes the word public offering, often it is for the interest of the company and not the retail public to be profitable.
Another important reason for the company to file an IPO is that they want to attract liquidity for the initial investors to complete their trade. It means that they want more buyers for that stock so that the initial investor of the company can sell off their stocks to the retail public and hence return to their initial amount of investment.
Types of investors who apply for the IPOs
The number of people applying for the IPOs in order to get the listing gain profits. They do so in order to get the stock at a lower price as they consider this price a valuable price and that stock will not go below that price. For example, the people who had applied for the IPO of companies like Infosys, HDFC, etc., are sitting at a price that these companies have never seen again in their lives. There are various types of people or groups who apply for the IPOs
It involves the Institutional investors, which comprises Mutual funds, prop trading desks, banks, etc. This category is what is known as the big players of the market, and the sum of money they use can move the markets in the desired direction. They are also involved in the process of applying for IPOs
Another category is Non-Institutional Investors. They involve the HNI (High Net Worth Individuals) or other corporate bodies. Almost 15% of stocks are reserved for this category of investors when it comes to the process of placing bids for IPOs.
The Last category is the Retail investors. It includes people like us with not very huge sums of money. This category involves 35% reserved shares for themselves.
Clearly, an IPO can be described as the launch of the company’s stock for the people to trade in and for the people who want to create wealth over time for them to invest. This launch is carried out by a few too many investment bankers depending upon the size of the IPO. We hope this information comes in handy for you in the future. Moreover, if you face any problems in understanding any concept or acronym, then check out our website today.