Indian stock market experts and novices appear to be pumped up about participating in company IPOs or Initial Public Offerings these days. Disturbing as it may have seemed, the recent IPOs generated a perception that they would yield a high return in a short period, making them attractive investment opportunities.
If you are interested in investing in an initial public offering (IPO), you must go through the IPO procedure and encounter the company prospectus or IPO document.
So, here's a quick look at some of the most critical aspects of upcoming IPO
and related terms:
You can use an abridged prospectus to get the most out of your IPO prospectus. The abbreviated prospectus is required to supplement all IPO application paperwork under the Companies Act of 1956.
Draft Red Herring Prospectus (DRHP)
No less than 21 days before the IPO, the business must submit the draught prospectus to the Securities and Exchange Board of India (SEBI). The Securities and Exchange Board of India (SEBI) has 21 days to review the prospectus and request revisions. During this time, the general public can also submit their thoughts to SEBI.
When learning about the Initial Public Offering application process, you'll come across the term "Application Supported by Blocked Amount" or "ASBA." SEBI devised a system to protect investors' interests that prevents debiting an investor's account until the shares have been allocated. Before this change, investors were required to pay the company upon application.
After then, if the shares are not allocated to the investor or the allocation is less than the requested offer, the corporation will repay the investment. We had to wait a long time for the process to be completed.
ASBA keeps the money in the investor's account, but the shares are not assigned until the money has been withdrawn. The amount is debited, and the balance is unblocked based on the number of shares allotted.
Red Herring Prospectus:
The Registrar of Companies (ROC) records the company's final prospectus before launching the IPO. A company's business account, operating specifics, management qualifications, IPO price band, future approach, the intended use of the IPO proceeds, and the IPO calendar are included in this document. The offered paper is another name for the prospectus.
The price band refers to the range in which investors can bid on initial public offering (IPO) shares. For each type of investor, namely QIBs, retail investors, and high-net-worth people, it is customized by the firm and the underwriter (HNIs).
For retail investors, it's the tiniest. Any bid that falls below or exceeds the price band defined for a share cannot be accepted.
Book Building Process:
Investors' bid prices are used to determine the IPO issue price based on the bids. Investors that have expressed considerable interest in the IPO and have bid high will have the issue price closer to the higher end of the price band. Because if not, it will be close to the bottom of the pricing range.
An IPO's pricing range is Rs.200-210 per share, and the issue price will be closer to Rs.210 if buyers bid high. Investors would have to bid lower for the issue price to be closer to Rs.200.
These are the first-day bids for initial public offerings (IPOs). It's also known as the initial public offering's start date.
For example, if an IPO's lot size is 1500 shares, you must bid on no fewer than 1500 shares. It is only possible to bid further in multiples of 1500, such as 3000 or 4500, if you do so.
For an IPO to be successful, retail investors must subscribe to at least this much of the company's IPO stock.
SEBI now requires a 90% subscription minimum. If the minimum percentage of 90% is not met, the entire subscription fee must be returned.
The Floor Price is the lowest price per share that can be offered when applying for an IPO. If an initial public offering has a price range, the lower end of the price band serves as the floor price.
Once the book-building process is complete, investors will be given shares at this price. Every kind of investor has a varied issue price, but retail investors typically have the lowest. Alternatively, the word "offer price" may be employed.
The cut-off price refers to the lowest price at which shares in an Initial Public Offering can be issued. It's usually reserved for the general public.
If your bid price exceeds the cut-off price, you will receive a refund for the difference.
The term "oversubscribed IPO" refers to an IPO that has been oversubscribed.
Oversubscription refers to the additional amount of money a firm receives when it's initial public offering (IPO) is oversubscribed.
An investment bank must handle the IPO on behalf of the IPO's issuer. The underwriters are the investment banks that participate in the IPO process. In addition to selecting the issue price, publicizing the IPO, and allocating the shares to investors, they all play different responsibilities in the IPO process.
After the IPO is completed, the underwriter is paid an underwriting fee.
Once you've learned a few essential IPO words, it's a breeze to understand the IPO process. Learn the lingo of initial public offerings (IPOs) with the help of this glossary.