IPO BLOG 2
By Sahil Shah (FYBCom student at KJ Somaiya Arts and Commerce College)
With the last blog we complete with Introduction, History and Pros & Cons of an IPO. If you have missed it then go and read it here : IPO
So, let’s not waste time in getting confused where to invest your savings. IPO is type of shares which is purchased before it enters into the Stock Exchange.
SEBI (Securities and Exchange Board of India) is the regulator of all the securities market of India which was established in the year 1988 and given the statutory powers on Jan, 1992 through SEBI Act, 1992.
An investment bank that has the primary directive for organizing an initial public stock offering. The lead underwriter usually works with other investment banks to establish a syndicate, and thereby create the initial sales force for the shares. These shares will then be sold to institutional and retail clients. The lead underwriter will assess the company financials and current market conditions to arrive at the initial value and quantity of shares to be sold. These shares carry a hefty sales commission (as much as 6-8%) for the underwriting syndicate, with the majority of shares being held by the lead underwriter.
ASBA (Applications Supported by Blocked Amount)
ASBA (Applications Supported by Blocked Amount) is a process developed by the India’s Stock Market Regulator SEBI for applying to IPO. In ASBA, an IPO applicant’s account doesn’t get debited until shares are allotted to them. Currently as per SEBI guidelines, all three categories of investors, i.e., Retail Investors, Qualified Institutional Buyers, Non-Institutional Investors, making application in public/rights issue shall mandatorily make use of ASBA facility. ASBA is stipulated by SEBI, and available from most of the banks operating in India. This allows the investors money to remain with the bank till the shares are allotted after the IPO. Only then does the money transfer out of the investors account to the company. This eliminates the need for refunds on shares not being allotted.
ASBA process facilitates retail individual investors bidding at a cut-off, with a single option, to apply through Self Certified Syndicate Banks (SCSBs), in which the investors have bank accounts. SCSBs are those banks which satisfy the conditions laid by SEBI. SCSBs would accept the applications, verify the application, block the fund to the extent of bid payment amount, upload the details in the web based bidding system of NSE, unblock once basis of allotment is finalized and transfer the amount for allotted shares to the issuer.
Detailed procedure of applying in IPO through ASBA.
Under ASBA facility, investors can apply in any public/rights issues by using their bank account. Investor submits the ASBA form (available at the designated branches of the banks acting as SCSB) after filling the details like name of the applicant, PAN Number, Demat Account Number, Bid Quantity, Bid Price and other relevant details, to their banking branch by giving an instruction to block the amount in their account. In turn, the bank will upload the details of the application in the bidding platform. Investors shall ensure that the details that are filled in the ASBA form are correct otherwise the form is liable to be rejected.
In short, if you want to purchase stock at the IPO or afterward, register with a stockbroker and wire funds to your brokerage account. When the IPO occurs, call your broker or go online, enter the stock symbol of the company and purchase the amount of shares you want.
How to apply for an IPOs.
- Login to your Net Banking Account.
- Click on the link named “IPO Application” under Request on the left side menu.
- Select one of the IPOs you want to apply for and mention up to 3 bids.
- Enter your depository details.
- Place and confirm your Order.
So basically, applying for an IPO is not so difficult. Yet, we should have forecast of the IPO whose shares we are purchasing. People usually ask, whether Demat account is required for purchase of IPO?
However, it is advisable to get the allotment in Demat form as the shares issued through an IPO are tradable only in the Demat form. It is compulsory to have PAN for applying for an IPO. Any investor who wants to invest in an issue should have a PAN which is required to be mentioned in the application form.
One or two great stock offerings a year can be enough to meet company earnings targets, but market conditions as a whole will determine the relative amount of profit the investment banks can earn.