Let us teach you some ground rules.
Basically the shares of companies are offered to the public in two ways either through an Initial Public Offering (IPO),in which a
company invites investors and institutions to bid for its shares or through second hand transactions that take place through the stock exchanges.
So the buyer puts a bid in of the shares he wants to buy at a certain price and the seller also puts in a price of the shares that he would be willing to sell them at, if the prices match the transaction happens and our potential investor has turned into an actual investor, AWESOME!
An initial public offering, or IPO, is the first sale of shares issued by any company to the general public.
Before an IPO the company operates privately, with smaller number of shareholders that are mainly early stage investors
(including founders, families of the founders and their associates) and/or professional investors (including angel investors and VC’s).
The public primarily includes everybody else like any individual or institutional investor who wasn’t previously involved in the early days
of the company and someone who is interested in purchasing shares of the firm. Till the time the shares of a company are not offered
through an IPO the general public cannot purchase its shares. However one can approach the owners of a private firm regarding investing,
though they're not obligated to sell you any shares. Whereas public companies have to sell at least some amount of their shares to the public
and to be traded on a stock exchange. This this is the reason why people often refer to an IPO as ‘Going Public’
The buying and selling that takes place after an IPO through a stock exchange is referred to as secondary market . A company can only issue shares to its shareholder directly before its IPO takes place after the IPO all the transactions have to take place through the stock market. So basically when you buy shares through the stock market you are not giving that money to the company whose shares you are purchasing you are buying the shares and handing over money to a seller who previously used to own the shares of the company.
Large companies which want to expand their business by going publicly take the help of Initial Public Offering.
Have you ever wondered why it is made at the initial stage of any company’s establishment? It is made at the beginning of
the company so that it can raise its capital by proposing its stock to the public. For attaining IPO, companies need the help
of an underwriting firm which can convey about the right type of shares and determine the appropriate time for issuing equity shares.
Instead of referring to the medium of IPO, you can directly trade your business to the public through "Direct Public Offering" (DPO). With DPO, the company's securities can directly be traded to the public without the interference of broker-dealers, investment banks, and underwriters.
The benefits of “going public” will side-line the difficulties of finding seed investment and removes the fear of getting
acquired by another company at the time of dissolution. IPO is credited for providing the high amount of funding to the company and its investors.
Here is a list of some of the globally recognized companies which raised their capitals through IPO.
The analysis of financial assets depends upon the market forces of demand and supply. The consumer buys the shares only when it is traded at a discount and sells it when the price of a share goes above its fair price. Companies which are new to the process of IPO find it immensely difficult to grab buyers as they try to sell their stocks at the price demanded by the buyers. Whereas those set of companies which have already been trading for many years do not struggle in gaining its market base as the buyers prefer them first by analysing their historical shares prices.
The Chinese company Alibaba Group’s net-worth in 2014 was estimated at around $25 billion and its market value was higher than e-bay and Twitter. It became possible for the Chinese company because it preferred to sell its stock to the public through (IPO).
As a buyer, if you have a cordial relationship with the broker then you can purchase oversubscribed new shares
before the other clients. Much to your information, oversubscription of shares take place when its demand exceeds the supply.
Before you buy any stock, thoroughly analyze the company's "SEC Form S-1" in which the information related to the company's capital proceeds, business model, prospectus regarding the planned security and rectified price of the share is given. This form is suggested for you to read because it will give you a brief about the company's way of working. You may even take the help of an IPO analyst in determining the true valuation of the company. For finding the exact price of the shares, divide the estimated valuation number of the shares to the offer price given on the shares.
Thus it is always advisable to research and even scrutinize the details of a company before putting up the money.
Qualitative analysis refers to intangible aspects related to the management's ability, the strength of research and
development and the social realm. It differs from analysing the company's financial balance sheet. The company's IPO
valuation is determined by the company's plans and projections. The best example to support this statement is the era of the early 90's where
the stocks of IT companies rose to the billions of dollars. It indulges the consumers to believe that the companies where innovation in technology
and product takes place steadily are the
ones whose stocks will be raised high and indicates the high chances of becoming a public company.
This is a regressive analysis which reinforces the buyer to do concrete research on the company's business model, balance sheet and to anticipate the time of its dissolution. Thus quantitative analysis informs the buyer about the exact fair value of the share and it leads him to scrutinize the industry comparables. Here the term “comparables” refers to the estimation method in which a currently sold asset is used to define the value of any similar asset.
"Application Supported by Blocked Amount” (ASBA) is a process developed by India's Stock Market Regulator (SEBI
It allows Qualified Institutional Buyers to take part in IPO related activities. It is a process that does not allow the applicant's account to get debited unless shares are allotted. It has become far easy for the investor to participate in IPO because his application money will be debited only if his application gets selected and shares are allotted to his account.
Through this process the investors can submit their ASBA form in any designated bank which is Self-Certified Syndicate Bank (SCSB). Its form requires you to fill certain details like applicant’s name, PAN number, demat account number, bid quantity and price, and other pertinent details. Its application forms are available online and offline too.
Although you cannot use the funds for any other purpose, it benefits you to earn an interest on the subscription amount at the time of your bidding in IPOs.
In earlier times, retail investors were applying for IPOs through drafts or cheques. It resulted in sealing of funds which further delayed the process of IPO allotment for many days.
Since 15th February 2015, applications have started going to ASBA, it has led SEBI to minimize the time period between an offer and processing of applications to the time limit of six days. At last, it has helped investors to quickly take refunds from IPOs.
Now you don’t have to wait for several days to retain funds as ASBA has made your work much easier.