What are IPOs?

June 25, 2021

What are IPOs?

Initial Public Offerings (or IPOs) allow for companies to generate a cash flow and grow by transforming their ownership. Instead of remaining private, they provide the public with an opportunity to invest in their shares, which they make available on the stock market. Once regulating authorities have verified their capacity for longevity and they have attained a certain valuation, companies are authorised to issue IPOs. In India, once the Securities and Exchange Board of India (or SEBI) gives their approval, companies decide the price they’d like to sell their shares at and the quantity they will make available for sale. They can market their upcoming openings in order to generate an interest. The appeal of IPOs lies in the fact that traders have the opportunity to invest in companies when they are still considerably small and can also make elephantine profits in the long run. Each company’s prospectus provides an outline of its present financial capabilities, its growth projections and what it seeks to do. This prospectus is made available to all traders interested in purchasing their IPOs.

IPOs and the Grey Market

Prior to listing themselves on the stock market, several companies might offer their shares to a select group of individuals who can bid for a chance to own the said shares. Since this bidding occurs in an unofficial setting, these bids aren’t regulated by regulatory institutions like SEBI. Within this Grey Market, the premium refers to the price at which the Grey Market IPO shares are traded. These prices determine how well a given company’s IPO might react on the day of its listing. Despite its name, trades made within the Grey Market are legal. Occasionally some startups might test waters in this parallel market before deciding whether or not to invest their time and money by listing on a major exchange. Traders invest in stocks in the Grey Market when they believe the said stocks will increase in value.

History of IPOs in India

Since the last decade of the 20th century, IPOs have become a popular source of investment in India. Presently, most of the super successful IPOs listed in India have dealt with technology, insurance, infrastructure development, Fast Moving Consumer Goods (FMCGs), health care or energy sources.

Indian IPOs in 2021

As of 2021, IPOs that are ready to take the Indian market by storm include companies that come from varied sectors. These sectors include jewellery, automation, chemicals and education. This is indicative of the success of IPOs and the faith they have enlisted in companies in terms of generating funds and growing their business paradigms.

Traders ought to look out for IPOs set to be provided by the following companies over the next few months.

Life Insurance Corporation of India (LIC) – As per the Finance Bill of 2021, the government is no longer going to own LIC in its entirety. That said, it plans on being a majority shareholder and retaining all rights and management control. LIC is set to raise capital from their present paid capital of Rs 100 crore to Rs 25,000 crore, made possible by offering the public 2,500 crore shares, set to be priced at Rs 10 each. LIC may very well become the country’s largest company by market capitalisation. It is estimated to be valued at anywhere between Rs 8 - 10 lakh crore.

Macrotech Developers (formerly known as Lodha Developers) aims to secure Rs 2,500 crore with the release of their IPO in April this year. This capital would be largely used to offset their debt and help with land acquisition. Their business primarily focuses on Real Estate development.

Studds Accessories, which is the largest manufacturer of helmets used by two wheeler drivers in the world, is also set to list its shares in the form of IPOs in May this year. With the onset of the Coronavirus pandemic, they are providing face shields for people to wear in addition to their pre-existing products.

ESAF Small Finance Bank provides small finance loans. Its proposed Rs 976 crore IPO is set to be released in May 2021. Of this figure, Rs 800 crore is set to be procured by the sale of a new set of shares.

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