IPO’s in 2021
If you know even a little bit about the Stock market, you might have heard about the term IPO somewhere or the other. IPO is nothing but the Initial Public Offering of the company. This is a major step for the company as well as the investors, since, after an IPO, a company becomes public, or to be precise, it gets listed on the Stock Exchange.
An important point to note here is that before a company brings its IPO, it is regarded as a private limited company, and once the IPO goes through and the company is listed on the Stock Exchange, it now becomes a public limited company. Public limited simply means it is now available to the general public to invest and hold a share/shares of the company.
So the first question that pops into someone’s mind is, what is the need for an IPO, and the simple answer to that question is, Capital(or in layman terms Money). A company might require working capital to carry out its operations or the company might be planning to expand its business. There could be different reasons.
Since the pandemic hit, and we were all locked within our homes, with all the free time that we got initially, a majority of the people tried to make an entry into the world of the stock market. In March alone, “Zerodha” the discount broker in India, recorded 3 lakh new accounts registered. Similar was the case with a foreign app, “Robinhood”. With the new retail investors coming in, IPO became a new fad for them. IPO’s in India have been performing well for the past year or two. The majority of the IPO’s have been providing a good listing gain that a retail investor looks for.
One thing quite funny about these IPO’s in current times is that the retail portion that is reserved for the retail investors is getting oversubscribed within few hours or a day since the IPO opens. Now what oversubscription means is that the number of shares that were reserved for the retails investors, the investors have applied for more than that reserved portion. For example- If an IPO has 3000 shares reserved for the retail section, the combined number of shares applied by different people is more than 3000. This retail frenzy has been seen recently in every IPO that is launched.
So as we come towards the end of the article, we should know about the allotment of shares. Generally, when an IPO gets oversubscribed, the retail investors are allotted lots(ie. a fixed number of shares) on a pure lottery basis. So let's say if you had applied for a lot or a number of lots in the IPO, there is a chance that you might or might not get the allotment of shares. This allotment basically is done by a computerized lottery system. The ones who get an allotment can consider them lucky enough since they can expect a good listing day gain/profit. The people who do not get the allotment, you might have seen this on Google pay, “Better luck next time”. Although this frenzy of listing gains and oversubscription might fade away in times ahead, for the time being, everyone wants to be in on this crazy ride.
That’s all folks. Just an overview.
