Share markets are of two types – primary markets and secondary markets. Primary markets involve the public investing in the latest upcoming IPOs. IPO or Initial Public Offering is the process through which a previously completely private business opens up its shares to be traded in public on an exchange. When a company goes public, it hires investment banks to make sure that the IPO results in a high influx of capital from the public.
The process involves significant efforts in due diligence, advertising, and regulatory compliance. The public buying the newly offered shares includes both retail and institutional investors while those selling the shares include promoters and initial investors of the company.
What are Upcoming IPOs?
Upcoming IPOs of 2023 are IPOs of companies that have filed the DHRP or Draft Red Herring Prospectus, and are expected to open in the coming weeks or months of 2023.
It is important to be up to date about the latest IPOs in the stock market because –
- You can then plan your IPO investment strategy properly based on your research on the companies as well as market sentiments regarding the IPOs. Therefore, you can take a more informed decision about the IPO investment.
- Even if you do not invest in an IPO right away, you can track the performance of upcoming IPOs. Tracking IPO performances will help you understand the sentiment in the market about IPOs and their sectors in general. It will add to your understanding of the capital markets as a whole and help you time your investments in general.
Who Can Invest in an IPO?
The Securities and Exchange Board of India (SEBI) allows 4 categories of investors to bid for shares during an IPO process –
- Qualified institutional investors (QIIs): QIIs include commercial banks, public institutions, mutual funds, and foreign portfolio investors registered with SEBI. SEBI regulations require that institutional investors sign a contract that locks them in the IPO for 90 days. This is done to keep volatility to a minimum throughout the IPO process.
- Anchor investors: QIIs who apply for the IPO and have assets worth more than ₹10 crores are considered anchor investors. They are allowed to purchase up to 60% of the shares reserved for the QIIs.
- Retail investors: Retail investors can invest up to ₹2 lakhs in each new IPO. Companies must allocate a minimum of 35% of the issue for retail investors under a quota. SEBI has also mandated that if the offer is oversubscribed, all retail investors are to be issued at least 1 lot of shares. If it is impractical to distribute one lot per investor, a lottery system will be used to allocate the IPO shares to the general public.
- High-net-worth individuals (HNIs) or non-institutional investors (NIIs): The investor is automatically categorised as an HNI if they opt to invest between ₹2 lakhs to ₹5 lakhs investment in the IPO. On the other hand, non-institutional investors are institutions that seek to invest more than ₹2 lakh. The difference between a QII and an NII is that the NIIs are not required to be registered with the SEBI.
What is the Process of Investing in an IPO Online?
The process of investing in an IPO is a simple one. Follow these simple steps to invest in an IPO via the Angel One app:
- Login to your Angel One account and go to the IPO section from the Home page. After due diligence, select the IPO you want to invest in under ‘Open & Upcoming’ IPOs.
- Click on ‘APPLY NOW’ to begin the process of investment.
- Enter the number of lots, the bidding price (in case of a book building issue), and your UPI ID.
- Click on ‘APPLY FOR IPO’ and confirm your bid.
- Accept the payment mandate request sent to your UPI ID to block the necessary funds. Your IPO investment process is now complete!
You can also apply for an IPO directly from your bank account via ASBA (Application Supported by Blocked Amount) as long as your account has a sufficient balance.
Although your application is submitted, you may not receive the number of shares that you applied for. The following are the reasons why that might happen –
- Oversubscription of the IPO – If the number of shares demanded exceeds the number of shares offered to the public in the IPO, the company may choose to distribute the available shares on a pro-rata basis.
- Rejection of your application – Your application for IPO might be rejected if you had entered incomplete or incorrect information or you did not have adequate funds, etc. In that case your money will not be spent and you will not get any shares.
Pre-requisites for Applying for an IPO
The following are the requirements for applying for an IPO in India:
- You must be an Indian citizen.
- PAN card
- Demat account
You may not need a trading account to apply for an IPO, but you may need it to sell your holdings once the IPO shares are delivered to your account.
It is also advised that you research the companies whose IPOs you want to invest in. Without due diligence, you should not be committing a large sum of money.