IPOS  

Evolution of IPOs

More and more companies are launching IPOs to raise funds for expansion plans. Stock Market Digital discusses the evolution of IPO market in India
 History of IPOs
 
 

We here about the term IPO regularly these days.  The Dutch East India Company was the first company in the world to issue stocks and bonds in an initial public offering in the year 1602. The initial public offering or stock market launch is the first sale of stock by a company to the public. The term initial public offering became a part of the everyday discussion during the tech bull market of the 1990s. Now let’s look at how the IPO market evolved in India.

Highlights of the IPO market in India

  • In the year 1994, the IPO market in India experienced a boom in its activities
     
  • The IPO market was 32% in the year 1995.
     
  • The growth was discontinued with the South East Asian crisis.
     
  • The markets gained speed again after the introduction of the software stocks.

How does IPO work in India?

The IPO market in India is on the rise as more and more companies are issuing equity shares in the capital market. After the introduction of the open market economy in the 1990s, the IPO market went through its share of policy changes, restructurings and reforms.  In India, the IPO method begins when the business lodges a registration declaration in accordance with SEC and as per the Securities Act of 1993. The SEC then studies the listing declaration and supports the entire revelation. The sponsor then proposes a prelude brochure and then an authorized catalog before the share offering.

How to apply for an IPO?

If one wants to apply for an IPO then one has to fill an IPO application form. These forms are available in the stalls outside the stock exchanges and with vendors in various other areas. You can also get the application form through a share broker or an investment consultant if you have one. You can also get forms available at various other banks. You should also check the SEBI website (http://www/sebi.gov.in/) for the prospectus of a particular IPO. The prospectus lists the lead managers for the IPO and you can also get a copy of the application form from their centers. After getting the form, you have to fill it, remit the amount after calculating the number of shares applied for in the bank that is chosen in the form as collecting centre for that IPO. You can also apply for the shares directly if you have a demat account or there is also an option of physical delivery of share certificates. Securities & Exchange Board of India also advises the investors to get allotment in demat form as the shares in the IPO are tradable only in demat segment in the stock exchanges.

Factors to mull over before applying for IPOs in India

Before applying for IPO offering in India, one must consider some factors like:

  • Status of the associates.
     
  • Historical record of the company providing the initial public offerings.
     
  • Promoters, their reliability and the records of the past.
     
  • Productivity estimates of the project.
     
  • Whether the company has got into collaboration with a technological firm.
     
  • The risk aspects engaged in plan execution.
     
  • Authority that has reviewed the plan.
     
  • Company producing or facilitating services.
     
  • The products offered by the company and its potential.
     
  • Project value and the techniques to sponsor the plan.

Advantages of IPOs

  • Access to capital: The benefit to the company is being able to raise capital for growth. In an IPO, the company sells on a small number of shares out of the total number authorized by its charter.
     
  • Rising wealth: The founders of the companies have likeness towards the IPO as it can increase the wealth of the company.
     
  • Increase in the capital: The IPO also allow   the company to increase funds for utilizing in corporate operational purposes like the mergers, acquisitions, working capital, research and development, marketing and expanding plant and equipment.
     
  •  Liquidity: The shares once traded have an assigned market value and can be resold. This is helpful as the company provides the staff with stock incentive packages and the investors have an option of trading their shares for a price.

Position of Indian IPO market

The data compiled by international consultancy company Ernst &Young (E&Y) states; India was the fifth largest market in terms of the number of IPOs and the seventh largest in terms of proceeds for 2007. Till November 2007, the worldwide IPO activity raised a record capital of $255 billion till November 2007, which also includes the $8.3 billion on the Indian stock exchanges. The international consultancy company said the strength of the India’s economy, the stock market and corporate profits and the private equity stimulated IPOs in 2007. But in the previous year, the market had witnessed 78 IPOs raising $7.23 million.

The IPOs help the company in creating awareness regarding the company as these public offerings make publicity by offering their products to investors.

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