InvestorQ : What are some of the key concepts I need to learn regarding to IPOs?
Tisha Malhotra made post

What are some of the key concepts I need to learn regarding to IPOs?

Moii Chavate answered.
3 years ago

While there may be a plethora of technical terms pertaining to an IPO, here are some of the key terms that any investor in the IPO needs to know…

Primary Market: Refers to the IPO market where one can invest in a company by applying in an IPO, without going through the stock market route.

Secondary Market: Refers to the actual stock exchanges (BSE and NSE) where shares are traded in demat format after they are listed post the IPO.

Fixed Price Issue: These are IPOs where the price of the IPO is fixed in advance. These fixed priced issues were very common in the past but now it is largely dominated by Book Built issues.

Book Building Issue: This is an attempt to discover the ideal price of the stock where demand and supply are sufficient to see the issue through. In a book building issue, the issuing company only issues an indicative range.

Over subscription of IPO: If the total issue is for 1 crore shares and there are valid applications for 8 crore shares then the issue is said to be oversubscribed by 8 times. Normally separate oversubscription figures are made available for the retail portion, HNI portion and the institutional portion.

Price Band in Book Building: This refers to the band in which investors are eligible to bid. Any application that is receive outside this range is automatically rejected. Of course, retail investors have the option of just bidding at cut-off and the shares will then be automatically allotted to them at the discovered price.

Green Shoe Option: This is a lot more common in debt issues. A greenshoe option has the permission to retail oversubscription up to a certain pre-defined limit. For example if there is an issue of Rs.500 crore with a Rs.250 crore greenshoe option, then the company in question can collect up to Rs.750 crore without seeking any further approval.

Par and premium issues: Even share has a certain par value. When the IPO is at the same price then it is a par issue and when it is at a price above the par value, it is a premium issue.

Premium listing of shares: When shares list on the exchanges above the book built price, then it is considered to be a premium listing. If it lists below the Book built price, then it is a discount listing.