What is IPO? IPO Special #AskRachanaShow Ep7 By CA Rachana Ranade
Summary
TLDRIn this Q&A episode, the host addresses common queries about Initial Public Offerings (IPOs), explaining the concept of IPOs, their purposes such as business expansion or debt repayment, and the difference between IPOs and FPOs. The video also covers how to track IPO subscriptions, the implications of promoters using IPO funds to pay off debts, and the significance of promoter selling stakes. Additionally, it discusses the possibility of selling allotted stocks on the listing day, the Chennai category for high net worth individuals, and compares IPOs to secondary market shares. The host touches on book building issues versus fixed price issues and hints at upcoming IPOs, encouraging viewers to stay informed and engaged.
Takeaways
- 📈 **IPO Definition**: An IPO (Initial Public Offering) is when a company offers shares to the public for the first time to raise additional funds for various purposes like business expansion or debt repayment.
- 💼 **Purpose of IPO**: Companies go public to raise funds for different reasons such as expanding the business, increasing working capital for daily operations, or repaying debts.
- 📊 **IPO Subscription Tracking**: The website Chittorgarh.com is mentioned as a resource to track IPO subscription levels and oversubscription data daily.
- 💵 **Debt Repayment with IPO Funds**: Using IPO funds to repay debts is not inherently bad and can improve a company's profitability if the operating profit is good but overshadowed by high-interest payments.
- 🔄 **Promoter Selling Stake**: Promoters may sell their stake during an IPO for various reasons, including regulatory norms that limit their shareholding percentage or to diversify the investor base.
- 🚫 **No Lock-in Period**: There is generally no restriction on selling IPO shares on the listing day, unlike anchor investors who are subject to a lock-in period as per SEBI guidelines.
- 🌐 **IPO vs. Shares**: Investing in an IPO can offer quick returns if the market price is higher than the issue price, whereas buying shares in the secondary market might offer more stability but less immediate gain potential.
- 📚 **Book Building Issue**: Book building is a process where merchant bankers determine a price band based on investor interest and willingness to pay, allowing the market to set the final issue price.
- 📉 **Fixed Price Issue**: In contrast to book building, a fixed price issue is when the company sets a single price for the shares offered in the IPO.
- 🌟 **Investment Strategy**: The decision to invest in an IPO or buy shares in the secondary market should be based on individual financial goals, risk tolerance, and market conditions.
Q & A
What does IPO stand for and why would a company go public?
-IPO stands for Initial Public Offer. A company goes public to raise additional funds for various purposes such as business expansion, working capital for day-to-day operations, or to repay existing loans.
How can we track the subscription status of an IPO on its last day?
-You can track the subscription status of an IPO on its last day by visiting websites like Chittorgarh.com, which provides daily updates on the subscription levels of different IPOs.
Is it true that promoters sometimes use IPO funds to pay off bad debts? If so, is this a risk factor?
-Yes, promoters may use IPO funds to pay off debts, which is not inherently bad. If a company has a good operating profit but is burdened with high-interest loans, using IPO funds to reduce debt can improve profitability and may not be a risk factor.
What does it mean when promoters sell their stake during an IPO, and is it a risk factor for investors?
-Promoters selling their stake during an IPO is not necessarily a risk factor. It could be due to regulatory norms or to allow a broader investor base to participate in the company's growth. It's important to consider other parameters when evaluating such a situation.
Can investors sell the allotted shares on the listing day of an IPO, or is there a lock-in period?
-There is no lock-in period for investors to sell their shares on the listing day. However, anchor investors are subject to lock-in periods as per regulatory guidelines, which can range from 1 to 3 years.
What is the difference between an IPO and investing in shares in the secondary market?
-An IPO is the first-time opportunity to invest in a company's shares, potentially offering quick returns if listed at a good price. Secondary market investments do not have the same initial price advantage but can offer more stability and liquidity.
What is a book building issue in the context of IPOs?
-A book building issue is a process where merchant bankers or consultants determine a price band for the IPO based on investor interest and demand. It allows investors to indicate the price they are willing to pay, influencing the final IPO pricing.
What is a fixed price issue and how does it differ from a book building issue?
-A fixed price issue is when the company sets a specific price for the shares being offered in the IPO, without seeking investor feedback on pricing. This is in contrast to a book building issue, where the price is determined based on investor interest.
What is the Chennai category in an IPO, and does it increase the probability of allotment?
-The Chennai category, also known as the high net worth individual (HNI) category, is for investors willing to invest more than 2 lakh rupees in an IPO. It does not necessarily increase the probability of allotment, as the demand in this category can be high, similar to retail.
When is the HDB IPO expected to come, and where can we get updates on it?
-The HDB IPO was expected in 2020, but the exact date was not announced at the time of the video. For updates, one can follow financial news, the company's announcements, or subscribe to financial market updates.
Outlines
📈 Understanding IPOs and Their Significance
The video script begins with an introduction to an episode dedicated to IPOs, explaining the surge in their numbers and the curiosity it has sparked among viewers. The host, Alison, addresses the first question by Sangeeta Agarwal on the meaning of an IPO. IPO stands for Initial Public Offer, which is a process where company promoters offer shares to the public for the first time to raise additional funds for various purposes such as business expansion, working capital, or debt repayment. The script also differentiates between IPOs and FPOs (Further Public Offers), and guides viewers on how to track IPO subscriptions on websites like Chittorgarh.com. The discussion touches on the reasons behind high subscription rates and the potential risks associated with promoters using IPO funds to pay off debts.
💼 IPO Strategies and Investor Considerations
In the second paragraph, the script delves into the reasons why promoters might sell their stakes during an IPO, emphasizing that it's not necessarily a negative sign. It explains the concept of 'offer for sale' versus 'fresh issue' and the regulatory norms that limit promoter shareholding to encourage broader ownership. The video also addresses the query about selling IPO stocks on the listing day, clarifying that there's no lock-in period for regular investors, unlike anchor investors who face restrictions. The segment highlights the difference between investing in IPOs and secondary market shares, suggesting that IPOs can offer quick returns but also carry risks if the listing price is lower than the issue price.
🏦 IPO Types and Upcoming IPOs
The final paragraph discusses different types of IPO issues, focusing on book building issues where merchant bankers determine a price band based on investor feedback. It contrasts this with fixed price issues where the company sets a single price for the shares. The script also touches on the upcoming HDB IPO, expected in 2020, and the concept of the Chennai category for high net worth individuals. The host encourages viewers to explore more about IPOs through her website and other educational resources, emphasizing the importance of continuous learning in the stock market. The video concludes with a motivational note, urging viewers to enhance their financial knowledge in the new year.
Mindmap
Keywords
💡IPO
💡Promoters
💡Subscription
💡Book Building
💡Price Band
💡Anchor Investor
💡Debt Repayment
💡HNI (High Net Worth Individual)
💡Listing Day
💡Fixed Price Issue
Highlights
Introduction to the Q&A episode focused on IPOs.
Explanation of IPO meaning and its purposes.
Discussion on how to check IPO subscription levels on Chittorgarh.com.
Addressing the concern about promoters using IPO funds to pay off debts.
Explaining the concept of promoters selling their stake and its implications for investors.
Clarification on the ability to sell allotted stocks on the listing day.
Description of the anchor investor's role and lock-in period.
Differentiating between IPO and secondary market investments.
Announcement of the expected HDB IPO in 2020.
Definition and process of book building issues in IPOs.
Comparison between book building and fixed price IPO issues.
Mention of additional resources for learning about stock market basics.
Encouragement for viewers to subscribe and share the video for educational purposes.
Closing remarks and a call to action for viewers to enhance their knowledge in 2020.
Transcripts
[Music]
hi guys see Alison are already here and
I welcome you all to my new episode Q&A
episode especially which is dedicated
for IPOs recently there was a spot in
the number of IPOs
wherein we could see two three IPOs
coming back to back in fact I released a
separate video on prince pipes IPO as
well pretty recently so I
there are many viewers who are asking me
a lot of questions about IPO so I
thought of collecting all these
questions and making a separate Q&A
series ask Krishna show for IP so let's
start right away the very first question
is by Sangeeta Agarwal hi Sangeeta and
the question is can you also explain the
meaning of IPO okay so IPO in short
version is nothing but when the
promoters of the company want to raise
additional funds what could be the
purpose purpose could be different
purpose could be number one they want to
expand the business purpose number two
they want money for their working
capital but so working capital means
day-to-day running of the business
purpose number three could be even let's
say they have taken a lot of debts okay
they have taken a lot of loans and I
want to repay the loans purpose can be
anything the moment they want more money
from a lot of different category of
investors which could include people
like you and me it could include banks
it could include big financial
institutions then the company comes up
with an initial public offer okay so I
hope initial public offer is simple it
is when the company offers shares to
people like you and me for the very
first time that's known as an initial
public offer if a second round of
funding is demanded by the company then
it is called as a FPO
it is called as a further public offer
or sometimes called as a follow-up
public offer us also I hope this one is
clear second question is asked by Manju
not gargy and so hi one unit and the
question is how do we know how much is
the IPO subscribed on the last day where
do we get this information let us go
through one by one so this is this
website Chittorgarh calm its
she thought over is a place in Rajasthan
I don't know what is the connection but
so
beautiful site as far as the IPOs are
concerned okay again this is not a
sponsored video budget order I genuinely
feel it's a good one as far as IPOs are
concerned
okay so I'll show you a quick example
for example og one small finance bank
and if you want to know how much was
subscribed on what day okay so I just
tapped on that then you have something
known as subscriptions like I just click
on that I scroll down and then I come to
this small section which says on
December 2nd how much the issue was
oversubscribed for example the qib
portion was subscribed 0.23 times but on
the very first day retail version was
subscribed eight point six one types
that's huge December 3 whatever December
4 whatever so just to give you a rough
idea rough idea total is like one
hundred and sixty five point six six
times and what does this mean if company
has offered one hundred and six has
offered one share ok company wants to
sell one share 165 is the demand it is
that big okay and this goes on updating
every single day it generally gets
updated in the evening ok so that's
where you can check it very easily it's
a free website it's not a pain website
second question which is asked is we
heard that promoters are paying off some
bad debts using this money raised is
that true will this be considered as a
risk factor okay
so paying debt with money that you are
raising from shareholders is not bad at
all assume that the company is doing
very well their operating profit is
fantastic
okay so just as an example by selling
100 rupees of products assume that their
profit operating profit is let us say
rupees 40 but out of this 40 50 rupees
you have to pay off as interest on loans
then you finally go into a loss of 10
rupees okay in spite of having a good
operating profit you are at a 10 rupees
loss towards the end so to reduce such a
risk what companies do is that they
might come up with an IPO they you they
would use this money to repay the debt
okay and that is why what will happen
their profitability will increase so if
a company has a very good operating
profit but if they have a low-fat or a
negative part just because of the
interest on loans
I feel it should not be a problem at all
you can very well invest into such a
company of course looking at other
parameters as well next question is
asked by Sun Moon star okay so the
universe
kaboo love me okay anyways I am running
out of any spot right now Sun Moon star
okay
why promoters are selling their stake
isn't it a risk factor that investors
should consider okay I'll give you a
simple example assume that I start a
company in this year and I start a
company with a face value of 10 rupees
so I've put in 10 rupees from my pocket
I raised money I raise capital for my
business I purchase certain equipments
the recording equipments everything and
I started my business okay I'm running
the business two years down the line
three years down the line five years
down the line ten years down the line
okay now what happens is that my brand
name has grown now Wow let this happen
but let's say my brand name has grown
after whatever ten years why ten years
also five years is also fine with me
okay so after five years let us say I
feel that it's time that my company does
not get restricted to select a few
people but I'm sure like people like you
will also be interested to invest into
my company why not yes you have to say
yes so if that be so I will sell my
shares okay so there are two concepts on
is offer for sale and one is fresh issue
so what I can do is that instead of
instead of issuing freshest okay making
freshest issuing them to you I might say
that I will sell my own shares to you
okay
one more important point is that when
promoters are selling their stake first
I feel it could be even because of semi
norms as for semi guidelines you are not
as a promoter you are not allowed to
hold more than 75 percent shares in your
own company that's as per the current
laws okay so I hope you have understood
this promoter selling their stake is not
bad at all Ramesh Krishnan wanna come hi
ma'am I am a beginner in stock market I
have doubt regarding IPO can we sell the
allotted
stocks on the listing day or there is
any restriction like lock-in period for
their other stocks now there is no
lock-in period at all but just for an
added piece of information there is
something known as an anchor investor
okay so anchor investors have to be
locked into the IPO for some X number of
years it could be 1 year 2 years 3 years
there is a legal compliance for that
okay so you can check that out but just
to visualize this concept so like assume
this is a boot and the so the board
should not go or flow away in the water
you have something on as an anchor okay
the anchor holds the boat tightly
similarly an anchor investor holds on to
the shares tightly they're not allowed
to sell on the listing day okay so maybe
the name is derived from anchor which
holds the ship an anchor investor holds
onto the shares they are not allowed to
sell on day one okay there's a semi
guideline for that as to how early they
can sell off the shares I hope this is
clear as well so next question is about
okay first it is asked by Natarajan Babu
what is a Chennai category can anyone
apply in that band and will it increase
my probability of getting the IPO if it
were in high demand I kindly talk about
this in the Oscar national show want to
try that band in SBA card IPO okay so
nitrogen understand a Chennai is high
net worth individual category you might
be getting a feeling that what is there
in her hand the problem is that there is
a construction going right next to our
building I don't have a soundproof
studio till now so we generally work in
proper timing so that there is less
disturbance in the video but today the
workers are refusing they're there
they're like very enthusiastic maybe
they have listened to my video and
they're fully charged up they want to do
their work like pull on so I have no
other option but to take one more Mike
maybe I'll be clearer and louder so with
that let me continue my show a nut
Ranjan nut rajanbabu has as the next
question he says what is a Chennai
category can anyone apply in that band
will it increase my probability of
getting the IPO if it was in a very high
demand kind of talk about this in the
ask Krishna show want to try that in SBI
card IPO okay fair enough a Chennai is
known as a high net worth individual
category and people who want to invest
for more than 2 lakh rupees in a
specific IPO then they are called as the
a Chennai individuals so in a Chennai
individuals do you know which people
come it's like it could be like such an
Tendulkar Amitabh Bachchan Shahrukh Khan
not rajanbabu all these people will come
in the a Chennai category right
so these are the ones who can who can I
mean who may they have a choice to apply
for more than two legs okay so that's
the category
it does not definitely increase your
probability of getting the IPO because
please understand if retail individual
investors are applying in such a big
number
hñ eyes are also going to apply in that
big number because the number of shares
that will be applied in the hni category
is going to be equally high or maybe a
little bit higher so I don't think it
would be a wise decision to invest in
the hni category so next question is by
jebin
a Chun a Chen could you a Chan could you
baby
okay jebin a chunk hoon do baby sorry if
I pronounced wrongly can you talk about
IPO versus share what are the advantages
and disadvantages of having a juvenile
or share okay so if I'm talking about
IPO versus share IPO is like you're
getting a chance to invest in the share
for the very first time
if the IPO comes at a good price then
generally you you get up I mean you have
a probability of getting a good return
in a short span of time just as an
example there was an IPO for one of the
rating agencies whose IP had come up at
300 rupees and it got listed almost
around at 900 rupees same happens with
Demark same happened with IRCTC handsome
gains so if you are talking about
investing in secondary market you might
not get a very big amount right away in
one day or two but again that that all
depends because there are many IPOs
which get listed at a price lower than
its actual price also okay so I can't
give you a single thumb rule answer for
your question yeah so that's it so would
you an IPO or share if you have not
gotten would you an IPO in your initial
allotment then you can think of buying
the share in the secondary market also
that's fine
okay so next question is by a mr. Dilip
D hello ma'am when is the HDP IPO coming
I think it's HDB will you please provide
a presentation on that it is expect to
expect it to come in 2020 but the date
has not yet been announced so let's see
so another better next question is by a
Salvation Wow what names today I'm
reading on Sun Moon stars and all that
thanks for the amazing
what is book building issue what are the
other types of IPO shoes can be there oh
that's a good question
I feel again it's good that you were
asking and it's good that I'm explaining
anyways I do have a separate series on
basics of stock market do check out my
link my website is Rukhsana run array
dot in i have taken a separate series
you many of you might be knowing but
just for just in case if you don't know
about it I've talked about sixty
five-plus concepts about stock market
and in that I guess two full lectures
that's like more than three as I have
talked only about IPOs so much much more
in detail this question is on what is a
big book building issue book building
issue is basically it's a big one to
explain but cut down cut it in doubt
down and short it's an issue where the
merchant bankers okay much in my
cousin's simple words I can put them as
consultants okay consultants will try to
find out what could be a price band okay
so it's it's um it's a very crude way of
explanation okay but I can imagine
somewhat something like this a
consultant goes door-to-door this does
not happen but just understanding
purpose Kelly a consultant goes
door-to-door and asks that if you were
to buy HDB IPO LDP IPO how much would
you be ready to pay for that the
consultant gives an it gives a
presentation then a specific price will
be quoted by the customer he would do
several such presentations several such
prices will be quoted based on these
prices the consultant who is a merchant
banker which would fix a price band okay
so lower band upper band so just to give
you an example Prince pipes it had fixed
at 177 to 178 that's a price band okay
and you're in who gets the opportunity
to finalize the final price the
opportunity to fix the final price is
given to people like you and me
so company can't decide whether it's 178
or it's 177 or what they just give a
price band we have to choose what price
we are opting for okay one other type of
issue she has asked for or he or she
whatever salvation has asked for other
type of IPO shoes fixed price issue
their company says we are offering
shares at two hundred rupees period we
are not asking you whether two hundred
to two
three what should be the actual price
that would be a fixed price issue okay
so two types of issues book building
issue fixed price issue but more popular
is book building issue well that's it
from my side I hope you have liked this
Q&A IPO special which I did after a long
time I guess in the new year we are
applying lot more video series so I hope
you have subscribed to my channel and I
hope you are sharing my videos to many
of your friends so keep sharing keep
viewing keep watching try enhancing your
knowledge as much as possible keep that
as a target for yourself in your 2020
that you will watch a lot of my videos
and you will share it to maximum of your
friends yes so that's it from my side
Jai Hindi bye
[Music]
تصفح المزيد من مقاطع الفيديو ذات الصلة
How to Invest in good IPOs [A step by step process]
Best 5 Coming IPO 2025 | New TATA, RAIL, HERO IPO Under Rs100 ? IPO का 1 शेयर उठा ले | 1 करोड़ो कमाओ
Simple Explanation Of Stock Market
Premier Energies Limited IPO Final update | Nifty 25000 crossed? | 26/8/2024
3. Why and how do companies list, and what is an IPO?
Не инвестируйте в ЭТИ российские акции! / БПН
5.0 / 5 (0 votes)