The Role of Initial Public Offerings in the Financial Market

Introduction

Every company or business organisation aims to grow and expand its business in the market. IPO or initial public offering is one such undertaking through which companies make their shares available to the public for the first time. It helps them raise capital from potential investors. 

The IPO Process: Steps Involved in an IPO

Step 1: Hiring an Underwriter/Investment Banker

Investment bankers are required to assist and guide the company in initiating the IPO. After carefully studying the company’s financial status, they advise how much capital should be raised. 

Step 2: Registering the IPO with SEBI

This step involves preparing a registration statement and Red Herring Prospectus with all the details of the IPO and registering it with SEBI as per the Companies Act.

Step 3: Applying with the Stock Exchange

After receiving the approval from SEBI, the company must choose the stock exchange they want to list the shares and apply for listing.

Step 4: Undertake Roadshows

Advertising campaigns and roadshows help a company spread the word about its IPO with potential investors.

Step 5:  Pricing the IPO

The company must fix its IPO pricing at which the public can buy its shares. They can use the fixed price or the book-building method.

Step 6: IPO Announcement

After all the formalities are completed and the price is fixed the company can declare the date of the IPO for the public.

IPOs provide plenty of benefits to the company and investors.

Why Companies Go Public: Reasons and Benefits

• Raise Capital: An IPO enables a company to raise capital from the market. The substantial availability of cash fuels its growth.

• Credibility & Awareness: IPO helps the company to be known among investors and clients or customers. It also makes the company’s products and services more popular.

• Reduce Cost of Capital: Companies can get capital at a reduced cost as compared to borrowing from banks and other institutions.

• Payment Mode: Public companies can pay in stocks to their employees.

Potential Rewards for Investors

1. Investors become the shareholders of the company.
2. As shareholders, they have the right to receive dividends and bonus stocks.
3. Investors can buy stocks at a much lower price and generate higher returns in the long term.
4. One can sell the shares in the open market (secondary market) once the shares are publicly traded.
5. Small investors get a chance to invest in big brands which may otherwise be difficult in the secondary market.

IPOs benefit not just the company and investors but also affect the market and economy as a whole.

IPOs and Market Dynamics

The last fiscal year has seen a major rise in the IPO as compared to the previous years. IPO affects the market in the following ways:

1. Helps to bring in more liquidity in the market as investors are keen to buy IPO due to the low price.
2. Gives chance to small companies and start-ups to raise capital efficiently.
3. IPO reduces the dependency on foreign investors, making the country self-dependent.
4. Companies from various sectors raise capital through IPOs. 

Recently Closed IPOs

The list of recently closed ipo will let you know which companies have gone public. Some of them are mentioned below.

Source: NSE India 

Conclusion

IPOs are an important event in the financial markets. They can help one assess the market conditions and economy. A boom in the recently closed IPO reflects that several opportunities are available in the market and may also indicate that the financial markets are gearing up and on an uptrend.