IPO Transaction
Q01 What is an IPO?
Q02 What is a Primary Market?
Q03 What is a Secondary Market?
Q04 How to apply for a called IPO?
Q05 What is book building?
Q06 What factors to see in an IPO for applying?
Q07 What is the main difference between offer of shares through book building and offer of shares through normal public issue?
Q08 What is minimum number of days for which bid should remain open in book building?
Q09 Can open outcry system be used for book building?
Q10 Is the issue price for placement portion and net offer to public the same?
Q11 What is the floor price in case of book building?
Q12 Can the Individual Investor use book building facility for making an application?
Q13 Can the bidder revise his bids?
Q14 What proof can bidder request from trading member for entering bids?
Q15 Is it possible to enter bids less than floor price?
Q16 How does one come to know of issues on offer and from where can one get copies of the draft offer document?
Q17 From where does one get the application forms and the prospectus?
Q18 Can the public give their comments/complaints on the Issuer company or others connected with the issue?
Q19 Where does one complain in case of wrong/ non-disclosures/ mis-statement in the offer document?
Q20 Within how many days an investor should receive the refund order/ allotment advise?
Q21 In case of non-receipt of the refund order / share certificate/ allotment advise what is the course of action available to the investor?
Q22 Within how many days should the company get its securities listed after the issue?
Q23 Is it mandatory to have a Demat Account for applying in public issue?
Q24 From where can I get the addresses of the companies and details of change of names etc.?
Q25 Are there any restrictions on pricing by companies?
Q26 What is ‘IPO grading’?
Q27 How is IPO grading different from an investment recommendation?
Q28 What is the requirement for IPO grading?
Q29 How will IPO grading meet this requirement?
Q30 Who will carry out the IPO grading ?
Q31 Is this IPO grading mandatory?
Q32 How would the grading be indicated?
Q33 What is the basis of allotment?
Q34 What is firm allotment?
Q35 Is there any preference while doing the allotment?
Q36 How is the Retail Investor defined as?


What is an IPO?
An IPO or Initial Public Offering is referred to the issue of shares to the public by the promoters of a company for the first time. The shares are made available to the investors at the face value of the share or with a premium as per the perceived market value of the share by the promoters. The IPO can be in the form of a fixed price portion or in the form of Book Building portion.
Top

What is a Primary Market?

Primary Market is usually referred to buying of shares in an Initial Public Offering. The shares are bought by applying for the shares in the respective application form. Then once the shares are alloted these share transactions are then done in the secondary market or stock exchanges.

Top

What is a Secondary Market?

Secondary Market is referred to those transactions where one investor buys shares from another investor at the prevailing market price or at whatever price both the buyer and seller agree upon. The secondary market or the stock exchanges are regulated by the regulatory authority. In India, the secondary and primary markets are governed by the Security and Exchange Board of India (SEBI).

Top

How to apply for a called IPO?

You need to obtain an IPO Application Form through a Share Broker or your Investment Consultant or they are available at the collecting banks. Then fill up the form, remit the amount after calculating the number of shares applied for in the bank that is designated as collecting center for that particular Initial Public Offer. If you have a demat account, then you can apply for the shares directly through your demat account or there is an option of physical delivery of share certificates. Some IPOs offer only Demat form of shares and many other IPOs offer both Demat as well as regular Shares. Care should be taken to provide all the details specified in the application form, because the application form has the chance of getting rejected due to not providing of the complete details.

Top


What is book building?

Book Building is a public offer of equity shares of a company. Book building is so called because it refers to the collection of bids from investors, which is based on an price range. The issue price is fixed after the bid closing date.

  • How is the book built process done?

    A company that is planning an initial public offer (IPO) appoints a merchant banker as a book runner. The company issues a prospectus which does not mention the price, but gives other details about the company with regards to issue size, the business the company is in, the promoters and future plans among other disclosures. Then a particular period is fixed as the bid period. The book runner builds an order book, that is, collates the bids from various investors, which shows the demand for the shares. For example, a bidder may quote that he wants 10,000 shares at Rs 500 while another may bid for 15,000 shares at Rs 600. Prospective investors can revise their bids at any time during the bid period.

  • On what basis is the final price decided?

    On closure of the book, the quantum of shares ordered and the respective prices offered are known. The price discovery is a function of demand at various prices, and involves negotiations between those involved in the issue. The book runner and the company conclude the pricing and decide the allocation to each syndicate member.
Top

What factors to see in an IPO for applying?
An investor has to look for many important things in an IPO to ascertain the risk factors before deciding to buy the shares of a company. Few of them are listed below:

Promoters Track Record for consistent performance over the previous years and their experience in running this particular business.

Risk Factors listed in the Offer Document.

Risk Factors specific to this particular venture, nature of the market, government policies associated with this particular industry or field and the performance of that particular sector in the previous years and any available forecasts for this industry for the near future.

Listing in as many Stock Exchanges in India, allows for easy liquidity.

Transparent and regular reporting of the company's performance and investor friendly policies adopted by the promoters.

The registrars, bankers to the issue.
Top

What is the main difference between offer of shares through book building and offer of shares through normal public issue?
Price at which securities will be allotted is not known in case of offer of shares through book building while in case of offer of shares through normal public issue, price is known in advance to investor. In case of Book Building, the demand can be known everyday as the book is built. But in case of the public issue the demand is known at the close of the issue.
Top

What is minimum number of days for which bid should remain open in book building?
Book should remain open for minimum of 5 days.
Top


Can open outcry system be used for book building?
No. As per SEBI, only electronically linked transparent facility is allowed to be used in case of book building.
Top

Is the issue price for placement portion and net offer to public the same?
Yes
Top

What is the floor price in case of book building?
Floor price is the minimum price at which bids can be made.
Top

Can the Individual Investor use book building facility for making an application?
Yes
Top

Can the bidder revise his bids?
Yes
Top

What proof can bidder request from trading member for entering bids?
Whenever a bid is entered by trading members in to the system, a unique transaction registration slip is automatically generated. Transaction registration slip gives details regarding number of shares bided for, price, the client name etc.
Top

Is it possible to enter bids less than floor price?
No. The system automatically rejects the bids if price is less than floor price.
Top

How does one come to know of issues on offer and from where can one get copies of the draft offer document?
Every week SEBI issues press releases for information of the public, details of offer documents filed with SEBI and observations issued. Details can be obtained from the "Primary Market ' page of the SEBI website. The draft offer document can also be purchased from the SEBI office where the document is filed on payment of Rs.100/- by way of DD drawn in favor of SEBI. The draft offer document/letter of offer remains posted on SEBI website for a period of 21days from the date of filing the same to SEBI and can also be downloaded from there.
Top


From where does one get the application forms and the prospectus?
Application form can be obtained from the lead manager and brokers to the issue. The application forms are also generally available at collecting bankers. Name and addresses of the Lead Manager are available in the prospectus/letter of offer
Top

Can the public give their comments/complaints on the Issuer company or others connected with the issue?
Yes, the objective of making offer document public is to invite public comments. The comments should be given within 21 days of the filing of the Draft offer document with SEBI.
Top

Where does one complain in case of wrong/ non-disclosures/ mis-statement in the offer document?
The Primary Market Division in SEBI
Top

Within how many days an investor should receive the refund order/ allotment advise?
Despatch of refund orders / allotment advice is to be within 2 working days of finalisation of the basis of allotment Companies are required to finalise the basis of allotment within 30 days from the closure of the issue in case of a fixed price issue and within 15 days from the closure of the issue in case of a book building issue or else they are liable to pay interest @ 15% p.a.
Top


In case of non-receipt of the refund order / share certificate/ allotment advise what is the course of action available to the investor?
The investor should give his complaint in writing to the lead manger/ registrar/ Investor Grievance Cell of SEBI.
Top

Within how many days should the company get its securities listed after the issue?
The post issue lead manager ensures that all steps for completion of the necessary formalities for listing and commencement of trading at all stock exchanges where the securities are to be listed are taken within 7 working days of finalisation of basis of allotment.
Top

. Is it mandatory to have a Demat Account for applying in public issue?
An investor has the option to apply for and receive the shares in physical form. However, it is advisable to get the allotment in Demat form as the shares in IPO shall be compulsorily tradable in Demat segment in Stock Exchanges. Dealing of physical shares (allocated in IPO) will not be accepted. In case of an IPO of any security of issue size of Rs. 10 crore or more, security shall be issued only in dematerialised form. In book built issues, for QIBs and large investors (applying for more than 1000 shares) allotment shall be only in Demat form and hence they should have a Demat account.
Top

From where can I get the addresses of the companies and details of change of names etc.?
From the stock exchanges and Registrar of Companies
Top


Are there any restrictions on pricing by companies?
The companies can freely price their equity shares. However they have to give justification of the price in the offer document.
Top

What is ‘IPO grading’?
IPO grading (initial public offering grading) is a service aimed at facilitating the assessment of equity issues offered to public. The grade assigned to any individual issue represents a relative assessment of the ‘fundamentals’ of that issue in relation to the universe of other listed equity securities in India. Such grading is assigned on a five-point point scale with a higher score indicating stronger fundamentals.
Top

How is IPO grading different from an investment recommendation?
Investment recommendations are expressed as ‘buy’, ‘hold’ or ‘sell’ and are based on a security specific comparison of its assessed ‘fundamentals factors’ (business prospects, financial position etc.) and ‘market factors’ (liquidity, demand supply etc.) to its price. On the other hand, IPO grading is expressed on a five-point scale and is a relative comparison of the assessed fundamentals of the graded issue to other listed equity securities in India. As the IPO grading does not take cognizance of the price of the security, it is not an investment recommendation. Rather, it is one of the inputs to the investor to aiding in the decision making process. All other things remaining equal, a security with stronger fundamentals would command a higher market price.
Top

What is the requirement for IPO grading?
SEBI has been taking a pioneering role in investor protection by increasing disclosure levels by entities seeking to access equity markets for funding. This has caused India to be amongst one of the more transparent and efficient capital markets in the world. However, these disclosures demand fairly high levels of analytical sophistication of the reader in order to effectively achieve the goal of information dissemination. IPO grading is positioned as a service that provides ‘an independent assessment of fundamentals’ to aid comparative assessment that would prove useful as an information and investment tool for investors. Moreover, such a service would be particularly useful for assessing the offerings of companies accessing the equity markets for the first time where there is no track record of their market performance.
Top


How will IPO grading meet this requirement?
As mentioned above, the IPO grade assigned to any issue represents a relative assessment of the ‘fundamentals’ of that issue in relation to the universe of other listed equity securities in India. This grading can be used by the investor as tool to make investment decision. The IPO grading will help the investor better appreciate the meaning of the disclosures in the issue documents to the extent that they affect the issue’s fundamentals. Thus, IPO grading is an additional investor information and investment guidance tool.
Top

Who will carry out the IPO grading ?
Credit Rating agencies (CRAs) registered with SEBI will carry out IPO grading.
Top

Is this IPO grading mandatory?
No. IPO grading is optional.
Top

How would the grading be indicated?
It is intended that IPO fundamentals would be graded on a five point scale from grade 5 (indicating strong fundamentals) to grade 1 (indicating poor fundamentals). The grade would l read as:" Rating Agency name " IPO Grade 1 viz CARE IPO Grade 1, CRISIL IPO Grade 1 etc.
Top


What is the basis of allotment?
In case of over-subscription in a fixed price issue, the allotment is done in marketable lots and on a proportionate basis. In case of a book building issue, allotment to Qualified Institutional Buyers (QIBs) and Non-Institutional Buyers (NIBs) are done on a discretionary basis. Allotment to retail investors is done on a proportionate basis. After the closure of the issue, the bids received are aggregated under different categories, such as firm allotment, Qualified Institutional Buyers (QIBs), Non- Institutional Buyers (NIBs) and Retail Individual Investors. The oversubscription ratios are calculated for each of the categories as against the shares reserved for each of the categories in the offer document. Within each of these categories, the bids are segregated into different segments based on the number of shares applied for. The oversubscription ratio is then applied to the number of shares applied for and the number of shares to be allotted for applicants in each of the buckets is determined. Then, the number of successful allottees is determined. This process is followed in case of proportionate allotment. In case of allotment for QIBs, it is subject to the discretion of the post issue lead manager.
Top

What is firm allotment?
A company making an issue to public is eligible to reserve some shares on 'allotment on firm basis' for certain categories. The shares to be allotted on 'firm allotment category' can be issued at a price different from the price at which the net offer to the public is made, provided that the price at which the security is being offered to the applicants in firm allotment category is higher than the price at which securities are offered to public.
Top

.Is there any preference while doing the allotment?
The allotment to the Qualified Institutional Buyers (QIBs) is made on a discretionary basis. The discretion is left to the merchant bankers who first disclose the parameters of judgment in the Red Herring Prospectus. The merchant bankers are free to set their criteria and mention the same in the Red Herring Prospectus.
Top

How is the Retail Investor defined as?
Retail individual investor refers to an investor who applies or bids for securities of or for a value of not more than Rs.1,00,000.
Top