What is IPO and why are companies listed? Understand the complete mathematics of the stock market on the pretext of NSE IPO (Image/AI)
A big chapter is going to be added in the history of the Indian stock market. The country’s largest stock exchange, NSE (National Stock Exchange) has officially approved its IPO (Initial Public Offering). After receiving ‘No Objection’ from SEBI, the almost decade long wait is about to end. But do you know how the IPO which is being discussed everywhere actually works? Why does a company make the public its owner? Let us understand the ABCD of IPO.
What is IPO? (What is an IPO?)
When a private company comes to the stock market for the first time to sell its shares to the general public, it is called IPO. This is also called “going public”. In simple words, when the company feels that it needs big funds to grow, then instead of taking a loan from the bank, it sells shares in its company to the public.
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Why do companies bring IPO? (Why Companies Go Public?)
– Capital Raise: Crores of rupees are required to expand the business, repay loans or invest in new technology.
– Exit Route: Early investors (Founders, Angel Investors) of the company can earn money by selling their shares to get the fruits of their hard work (as is happening in NSE’s ‘Offer for Sale’).
– Trust and Visibility: After getting listed in the stock market, the credibility of the company increases because it has to follow the strict rules of SEBI.
– Benefits to employees: Through ESOP, the company’s employees are also able to become a part of the company’s growth.
Disadvantages and advantages of IPO
| Advantages | Disadvantages (Loopholes) |
| Huge funds are available for business expansion. | The process is very expensive (fees, advertising etc.). |
| Shares have liquidity (easy buying and selling). | Owners lose control over the company. |
| SEBI rules increase transparency and trust. | Pressure of quarterly reports and audits. |
| The brand value and identity of the company increases. | Accountability to external investors and the board. |
IPO process: How are shares listed?
Bringing IPO is not a one day job. It involves several important steps:
– The company chooses big banks (Investment Banks) which help in the entire process.
– The company has to submit a ‘Draft Red Herring Prospectus’ (DRHP) with SEBI, which contains information about the entire history and future plans of the company.
Company promoters hold meetings with big investors so that they show interest in buying their shares.
The company decides what will be the price of one of its shares.
– Finally, on a fixed date the shares become available for trading in the market.
NSE IPO: Special points
NSE has formed a committee (IPO Committee) under the chairmanship of Tablesh Pandey to handle this entire process. This committee includes Ashish Chauhan (CEO) and many experts. This committee will decide which banks will manage this IPO and when the draft will be filed.
IPO is not just an investment opportunity but a new flight of development for a company. NSE’s IPO can prove to be a big opportunity not only for the exchange but also for Indian investors.
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