What is an IPO and Why Do Companies Go Public?
What is an IPO and Why Do Companies Go Public?
The announcement of the IPOs makes for really grand headlines in the finance industry. People heavily trading in stocks meticulously follow upcoming IPOs in India as they are constantly looking to strengthen their portfolio. And as a smart and brilliant investor, we need to be up to date with the upcoming IPOs in India as well.
What is IPO?
Initial Public Offering or IPO is a process by which a
private company can go public by sale of its stocks to the general public for
the first time. It could either be a new, young company or an old company that
decides to be listed on an exchange and hence, goes public. At the time of
issuing their shares to the public, companies can raise equity capital with the
IPO, or the existing shareholders can sell their shares to the public.
Moreover, companies fall into two categories: Public and
Private. A private company is run by a closed group of people with fewer
shareholders who don’t give out much information about the company. Any
business with a good influx of money, the right legal documents, and some other
required formalities is a private company. You cant buy shares from a private
company. You can approach the shareholders privately; moreover, they are not
obliged to sell their shares.
Public companies, moreover, sell at least a part of their
shares to the public and trade on a stock exchange. This is why at the time of
announcing an IPO is also referred to as “going public.” Once the upcoming IPOs
in India finally make their announcement, their shares are available for people
to buy. And since the public is majorly involved, the companies are immediately
bound by stricter rules to maintain transparent financial information sharing
and set-up of a robust board of directors. The most thrilling thing about a
company going public is that the shares are traded in the open market, like any
other commodity. Anybody who has cash can invest.
Why do private companies go public?
Being listed on a major stock exchange increases the
company’s standing considerably. Going public means an influx of money, and
oftentimes the amounts are huge, and that is extremely beneficial for the
growth of the company. They open traditional financial doors defined by the
demand for stocks by the public. With increasing demand in the market, the
companies issue more stocks in the market. Thus, mergers and acquisitions are
easier to do because stock can be issued as a part of the deal.
So one would imagine that any company could be listed on the
upcoming IPOs in India and go public eventually. But there are several criteria
laid out by SEBI that have to met before the grand announcement. An IPO is just
selling stock. It has to be supported by a strategy of strong sales. If the
company can convince people to buy their shares, they can raise a lot of money.
Financial newspapers, trading companies feature a list of
upcoming IPOs in India, and this is a rapidly growing stratosphere. As a smart
investor, you need to know these companies and general public response to it so
that you can grab lucrative opportunities for a robust portfolio.
Also Read: How to invest in mutual funds
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