What is IPO listing and What Happens once the IPO is listed in secondary market?
5paisa Research Team
Last Updated: 04 Apr, 2022 01:50 PM IST
Want to start your Investment Journey?
Content
- Introduction
- How Does IPO Affect a Company?
- IPO Listing
- IPO Listing Eligibility as per SEBI
- Post IPO Listings
- Conclusion
Introduction
IPOs, or Initial Public Offerings, are a process by which a private company becomes public by way of issuing its stock in the market to be traded. This is a great way for companies to raise capital. It is also a lucrative option for shareholders of such a company to get the bang for their buck.
To get started with the process of IPO listing, the company that wishes to go public must first undergo three major overhauls:
• The decision-makers / founding members must come to terms with their company going public
• The company must hire new muscle to look after policy/framework restructuring
• Intensified marketing needs to be undertaken to give the first shares a good boost
Once all the internal processes are complete, the external activities begin. This includes gauging the eligibility based on IPO criteria published by the preferred exchange, learning about application processes and fee structure and getting abreast with SEBI guidelines, rules and regulations for going public. Issuing stock for the first time is a rigorous process, and it takes time for it to successfully conclude.
Let’s learn in detail about IPO listings and what happens when an IPO gets listed in the secondary market.
How Does IPO Affect a Company?
Going public has its benefits for a company, the biggest advantage being the fact that a significant amount of capital can be raised from the issued shares. Another great advantage constituted in going public is that the company gets exposure to a wider consumer base, owing to its intensified marketing efforts to make the IPO issuance successful. A boost in the market shares of a company is the direct result of IPO marketing.
With that said, there are a couple of downfalls as well of going public by IPO that can impact a company adversely. The following disadvantages associated with listing IPO are mentioned below:
• The first disadvantage comes in the form of costs involved with compliance with the regulations. Especially in the case of companies of smaller scales, the fee structure, audits, investor relations and compliance overhauls may end up costing them dearly
• The second disadvantage is the disclosure requirements mandated by regulatory authorities. Many companies may not want to make their investment information public; it may so happen that it reduces the trustworthiness of the brand
IPOs involve a long process to finally get a company listed on a stock exchange – it isn’t exactly a walk in the park. This is the primary reason why going public is a matter of great consideration.
IPO Listing
When a company decides to go public, there is a whole internal and external process involved before which IPO listing does not happen. While the internal processes are more about restructuring and marketing, the external processes involve assessing eligibilities, applying for IPOs and managing fees. Let’s discuss that in detail.
IPO Listing Eligibility as per SEBI
SEBI prescribes the eligibility criteria for companies wishing to go public. The following criteria must be met by a company going public for it to be eligible for IPOs.
Paid-Up Equity Capital
• Should be greater than ₹10 crores
• Capitalization of equity should be greater than ₹25 crores
Listing Conditions
The precedent conditions that the issuing company must adhere to before IPO listing are as mentioned in:
• Securities Contracts (Regulations) Act of 1956
• Companies Act 1956 / 2013
• Securities and Exchange Board of India Act 1992
• Any mandates issued by concerned authorities
Track Record
The issuing company must present a three-year track record of any one of the following:
• The applicant who has applied for the IPO listing
• The track record of the promoter or promoting company, whether incorporated in India or outside
• Converted partnership firm. The subsequent company formed shall be governed by the regulations stipulated by SEB
Mechanisms
If a company desires to be listed, it must meet the following requirements:
• Redressal mechanism that clarifies the details of pending investor grievances against the issuing company, subsidiaries and top 5 group companies that are listed by Market Cap
• Mechanism designed for grievances redressal of investor complaints
• The company must have paid off all its defaults before applying for IPO listing, as the listing will not conclude until all obligations are squared off
Post IPO Listings
When a company decides to issue IPO, several things happen.
• The company gets restructured from a private to a public organization
• The stock of that company gets issued for the first time in the primary market
• The company may participate in early price discovery to put the right market value on its securities
• When the company is listed and stock is made available in the secondary market, the shares are ready to be traded between stock exchanges and investors
• In case the price discovery is very low, the stock may be traded in the OTC market
Conclusion
Deciding to go for IPO listing is a big decision for the founding members of a company. It is either a strategized move or a desperate action to raise funds by a company. Whatever the case, IPOs give the opportunity to a company to get down into the market and measure its own worth in terms of public opinion.
SEBI prescribes the eligibility criteria for a company to go public which it must fulfil. Additionally, there needs to be a regulatory compliance and grievance framework in place.
More About IPO
- IPO Cycle
- Greenshoe Option
- How To Cancel An IPO Application
- NFO vs IPO
- What Is Application Supported By Blocked Amount (ASBA)?
- What Is FPO In Share Market?
- Abridged Prospectus
- How to Buy IPO Online in India
- What is the full form of IPO?
- Biggest IPOs in India-Opportunities in the Domestic Market for Startups
- How to Apply for IPO Under HNI Category?
- A Brief Explanation of RII, NII and QIB Investors
- Popular Terminologies around IPO
- Listing Requirements and Delisting - A Comprehensive Guide
- What Is SME IPO? - A Comprehensive Guide
- What is IPO Book Building
- What is Cut-Off Price in IPO?
- Tips for Investing in IPO
- What Is Oversubscription in IPO?
- What is Face Value in IPO?
- Types of IPO Investors
- The Benefits of Investing in IPO in India
- What is IPO listing and What Happens once the IPO is listed in secondary market?
- What is Percentage Gain and How Does it Work?
- IPO Application Methods - Apply IPO through UPI ID
- IPO Application Methods - Apply IPO through ASBA
- Things to know before buying an IPO
- How is an IPO Valued?
- Things to know in RHP
- Know about Pre-IPO investing
- IPOs for Beginners
- What is the Difference Between RHP & DRHP
- Difference between IPO and FPO
- Different Types of IPO
- How to Increase Chances of IPO Allotment?
- Why Should You Invest in an IPO?
- What is IPO Allotment and How to Check IPO Allotment Status?
- What is IPO GMP?
- What is IPO Subscription and What does it indicates?
- How to Apply for an IPO?
- What is IPO?
- What is the eligibility to apply for an IPO?
- Why do companies go public?
- Process Of IPO In India Read More
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer please Click here.