Why Do Companies List on the Stock Exchange?

Initial Public Offering, IPO comes into play for a company when it is in the process of expansion of its operations in the respective field. It approaches investor companies/ promoters/general public to secure higher levels of the capital market.

Capital market investment is the most important aspect for a businessman and after a stage, you would approach financial institutions for support. And, later when your business levels increase by leaps, you will tend to approach promoters/retailers in the open market for funds.

To obtain funds from the general public and promoters you will have to register your company at the stock exchange (BSE/NSE).

Before listing your company on IPO at the stock exchange, it will have to fulfill certain obligations. The company must have projected a profit margin of 15 percent every year, and in addition, the company should satisfy the conditions of the stock exchange.

Your company must open with a precise red herring for the promoters/retailers that speak transparently about the financial aspects of the institution.

In a nutshell, you will seek to obtain an IPO at the stock exchange to reach the promoters, and public for financial investment to expand the capital market base.

Section of the Business Communities Utilising IPO

You may be a small, or medium enterprise with sound financial and operational fundamentals or plan to expand an existing business in a massive way. In all cases, you must approach an IPO to acquire fresh capital investments.

Technically speaking, the acquired funds through IPO can be utilized in finance research, spend on capital expenditure, clear debts, and enter into new avenues of business operations.

The IPO listing will open up the scrutiny of the company’s funding operations after getting listed on the stock exchange. It refers to the company’s equity, bond instruments, etc.

The IPO-listed company attracts the attention, maintains transparency, and obtains market credibility.

An unlisted company offers an initial public offering, IPO, to sell the securities in the public market. In case you are issuing an IPO for the first time, then the primary market shall deal with new securities.

A company that enters into IPO transactions in the primary markets does issue two kinds of shares namely fixed price offering, and book building offering, and is termed as the issuer.

Fixed Price Offering is the price at which the company issues the shares at the IPO on the stock exchange.

Book Building Offering is the price at which the company initiates an IPO. The price is a 20 percent band on the stocks to the investor. If you are interested in making an investment then you are free to bid the shares much before the final price is fixed.

You have an option to issue additional common shares after the IPO listing in the BSE/NSE. There are several ways to issue common shares to the corporates and one such way is through follow-on offering. This kind of offering allows the company to obtain capital for different corporate purposes through the release of equity issuance.

Thus, you can raise corpus funds to utilize in the building of capital from the public markets. Raising the money from the public quickly through IPOs becomes a prime cause to go public.

Careful Analysis is Essential before Investing in an IPO:

You can make a decent earning on the IPO investment provided you hold a certain level of expertise.

Before making a decision on an IPO investment, you must read the company prospectus and the red herring in a detailed manner.

Check in the detail that speaks about the purpose of raising stocks in the IPO markets. In fact, it reflects the layout of the business operations in brief.

You must have a clear sight of the financial metrics of the IPO and ascertain the opportunities.