What is IPO, Definition, How to invest in IPO

Posted on by Giovanni Green

An Initial Public Offering (IPO) can be a life-changing investment opportunity. When a company offers its shares to the public for the first time, investors are given the chance to be part of something big—owning equity in a company that could be on the cusp of tremendous growth. Whether you’re a seasoned investor or just beginning, understanding IPOs and how to apply for them is essential in today’s fast-paced financial world. 

Also, to begin your investment journey, opening demat account is essential, as it allows you to hold your shares electronically and facilitates seamless trading.

Why Do Companies Launch IPOs?

The IPO process transforms the company from privately held to publicly traded, allowing everyday investors to buy into the business. Companies go public for various reasons, but primarily to raise capital for growth and expansion, as well as to provide liquidity to their early investors.

  1. Raise Capital: IPOs enable companies to raise funds needed for expansion, research, and paying off debts.
  2. Increase Liquidity: Early investors, founders, and employees who hold company stock can sell a portion of their shares in the public market.
  3. Enhance Public Image: Being listed on a stock exchange increases a company’s visibility, credibility, and reputation.
  4. Improve Valuation: Companies often receive higher valuations after going public, which can attract more investors and new business opportunities.

Types of IPOs

There are two primary types of IPO offerings:

  1. Fixed Price Offering: In this method, the company sets a fixed price for its shares. Investors know the exact price at which they will be purchasing shares, but demand is only determined after the subscription period ends.
  2. Book Building Offering: In a book building offering, the company provides a price range. Investors bid within this range, and the final price is set based on demand and supply dynamics.

Advantages of Investing in an IPO

  1. Increased Recognition: IPOs bring companies into the limelight, drawing media attention and increasing brand recognition.
  2. Access to Capital: Companies can leverage the funds raised from an IPO to expand operations, develop new products, or settle debts.
  3. Diversification Opportunity: Investors get the chance to buy into potentially high-growth companies early, which could lead to significant financial gains.
  4. Management Accountability: Public companies are required to comply with stricter regulations, ensuring higher levels of transparency and management discipline.
  5. External Validation: The market’s valuation of a company offers investors a third-party perspective on its worth, validating its market position.

Disadvantages of Investing in an IPO

  1. Higher Costs: Going public can be expensive, involving underwriting fees, regulatory costs, and listing fees.
  2. Lesser Autonomy: Once a company is publicly traded, management must answer to shareholders, limiting its operational flexibility.
  3. Increased Pressure: Public companies face ongoing pressure to meet quarterly earnings expectations, which can impact long-term strategic decisions.

How to Invest in an IPO?

With the rise of digital platforms, investing in an IPO has become simpler than ever. Apps like the HDFC SKY app make it easy for retail investors to participate in IPOs from the comfort of their homes. 

Here’s apply IPO through HDFC Sky app:

  1. Download the HDFC SKY app: Start by downloading and installing the app on your smartphone. Afterwards, register by entering your personal and banking details.
  2. Check for Upcoming IPOs: Navigate to the IPO section of the app to see a list of upcoming IPOs. Each listing will have important details like the company’s background, price range, and application dates.
  3. Apply for the IPO: Once you’ve selected an IPO, you can apply by entering the number of shares you want to purchase. The app makes this process straightforward by guiding you through each step.
  4. Submit Your Application: After filling in all the required information, submit your application through the app.
  5. Track IPO Allotment Process: You can track the status of your IPO application app, where you’ll be notified about your share allotment once the process is complete.
  6. Manage Your Investments: The app for IPO also allows you to track your investments post-allotment, enabling you to keep an eye on how the stock performs once it is listed.

By using the HDFC SKY app, you can streamline the entire IPO application process, making it easy to manage your investments, track allotments, and stay informed on upcoming IPOs.

IPO Timeline

The IPO (Initial Public Offering) timeline involves several key phases, each with specific durations and activities. 

Here’s a detailed overview of the typical IPO process:

1. Preparation Phase (12-18 months): Companies assess financial health, develop an IPO roadmap, and assemble a team of accounting, legal, and investor relations professionals.

2. Pre-Filing (4-6 months): A kickoff meeting sets the timeline, underwriters are selected, and necessary documents like financial statements are prepared for the S-1 filing.

3. Initial Submission (3 months): Confidentially submit the S-1/F-1 forms for SEC review and prepare for the roadshow by creating investor presentations.

4. Roadshow (2 weeks): Investor meetings are held to gauge demand, and the IPO price range is finalized based on feedback.

5. Pricing and Trading (1 day): The final IPO price is determined after market close, and shares begin trading the next day.

6. Post-IPO: Companies enter a quiet period and comply with ongoing SEC reporting requirements.

Key Terms Associated with IPOs

  1. Issue Size Meaning: The total value of shares issued during the IPO process.
  2. Allotment: The process of distributing shares to investors who applied for them during the IPO subscription.
  3. Primary Purpose of IPO: To raise capital for the company and provide liquidity to early investors.
  4. Types of Investors in IPO: Investors are typically classified as retail investors, institutional investors, or high-net-worth individuals.
  5. IPO Debt: Some companies might issue debt instruments as part of their IPO to raise additional capital alongside equity shares.

The Importance of IPO Investment Apps

The popularity of IPO investments has grown with the increasing availability of online platforms and mobile applications. The HDFC SKY app has emerged as one of the top apps for IPO online applications, offering investors a seamless and efficient way to apply for IPOs. 

Here’s why the HDFC SKY app is ideal for investors:

  1. User-Friendly Interface: The IPO app is designed to make the application process simple, even for first-time investors.
  2. Real-Time Notifications: Investors can receive instant updates about upcoming IPOs and their allotment status.
  3. Seamless Application Process: From browsing upcoming IPOs to applying and tracking allotments, the HDFC SKY app handles every step of the investment process.
  4. Portfolio Management: The app allows users to monitor their IPO investments and manage their portfolio, making it a one-stop solution for all IPO-related needs.

Conclusion

Investing in an IPO offers investors the chance to buy shares in a company on the ground floor of its public life. For companies, an IPO is a major step toward growth and accessing large-scale capital. Thanks to modern digital platforms like HDFC SKY, the IPO investment process has been made more accessible than ever before.