What is an IPO and how do I apply for it ?

Summary

Investing in an IPO can offer a significant opportunity for growth in the share market , but it is essential to approach it with careful consideration. Understanding the IPO process and doing research can help to reduce risk and increase your chance of success in the share market.

Categories of share market

Before knowing about IPOs, firstly you should know about the categories of the share market and where IPO’s come out. So basically, share markets are divided into two categories: primary markets and secondary markets. 

The primary market is the initial point of engaging in stock exchange business when a company offers its shares to the public for selling and uses the cash to fund its operations. Once the company floats its shares in an Initial Public Offering (IPO), these are tradable securities that exist in the market. 

After the shares are floated, they become available for negotiation in the secondary markets, where people continue to transact.

About IPO and its process

An IPO, which stands for Initial Public Offering, means going public when a company, which was formerly in the private domain, issues its shares and floats them in the stock market. This process is referred to as going public and it assists the company in raising capital to finance expansion or to repay some of its debts.

It also helps the company to float a lot of capital, which is often arranged by investment banks to ensure a successful IPO and high investor turnout.

The IPO process includes due analysis, marketing plans and legal requirements, as well as following the legalities of IPOs.  Investors consist of both retail and institutional buyers and some of the IPO sellers are promoters and early stakeholders in the firm.

How will you apply for an IPO?

• Go to the  app or the official website,  where your Demat account is opened. 

• At that point, you will find the ‘IPO’ tab on the home page.

• Select the IPO from the list on which you would want to invest.

• Return to the IPO important data, including maximum number of shares, investment limits and other company details.

• Then, there is a button that says “Apply Now"—click it and complete the fields with the number of lots you want to bid on, your bid price, and your UPI ID.

The confirmation screen, where you can review all the filled-in information, is the last step of IPO application submission. Value a confirmation of your application and press on the payment request sent to your UPI app to complete the IPO application process.

Most important aspects to keep in your mind when choosing IPOs  

Company's financial report : A big focus should be given to the company’s ability to generate revenue, profitability trends, levels of debt and overall historical growth. The information normally would have been made available in the prospectus that has been filed with SEBI, respectively.

Valuation Analysis: Evaluate the cost of the IPO in relation to the value of the company’s market in the market. Action should be taken not to chase IPOs that are extremely overpriced, as this usually results in setting the P/E ratio on the IPO as soon as the shares go trading.

Industry and Market Prospects: Assess the industry growth rate of the company’s operation. This is well illustrated by business lines like renewable power and renewables companies; the risks with payoff include the sector that is selected and the amount of demand that exists in the market, as well as competition.

Utilisation of IPO Funds: Find out how the company intends to utilize the proceeds generated from the IPO. If the basic purpose is debt payoff rather than business growth or new idea implementation, then it may be problematic.

IPO Size and Market Impact:  Larger IPO issues may also attract the interest of institutional investors, useful in making the stock price more stable once in the market.  

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