Initial Public Offering

• Context (IE): India has seen an IPO boom recently.
• An IPO is when an unlisted company raises funds by offering shares to the public or new investors.
• Following the IPO, the company is listed on the stock exchange.

Listing means formally admitting a company’s securities to the Exchange’s trading platform.

• The company has to file its offer document with the market regulator, the Securities and Exchange Board of India (Sebi), before releasing an IPO. This document is called the Red Herring document.

Red Herring document contains all relevant information about the company, promoters, projects, financial details, the object of raising the money, terms of the issue, etc.

• If an IPO is an Offer for sale (OFS) by promoters or existing investors, then the money goes to them. E.g, in the case of LIC, the issue was an OFS by the government, and the proceeds went to the GoI
• The per-share price of the public issue is fixed by the issuer in consultation with the merchant banker based on the company’s valuation.
• SEBI has no role in price fixation.

Securities and Exchange Board of India (SEBI) It is an autonomous statutory regulator of India’s securities & commodity market. It was established in 1988 & given statutory Powers through the SEBI Act of 1992. Headquarters: Mumbai; it has four other regional offices.

Eligibility for IPO release

• Net tangible assets of at least Rs 3 crore,
• Net worth of Rs 1 crore in each of the preceding three full years,
• Minimum average pre-tax profit of Rs 15 crore in at least three immediately preceding five years.

Categories of investors in IPO

• “Qualified institutional buyers” is a category of investors that includes foreign portfolio investors (FPIs), mutual funds, commercial banks, insurance companies, pension funds, etc.
• Retail investors invest up to Rs 2 lakh in an issue.
• High-net-worth individuals (HNI) are retail investors investing above Rs 2 lakh.
• The minimum age to invest in stocks and hold a demat account is 18 years.

A Demat Account holds information about the shares and securities one owns. It keeps investments in digital form, eliminating the need for paper documents.