Primary Market – Public Issue & IPO Process

Introduction

The Primary Market (New Issue Market) is where a company creates and sells new securities to the public for the first time.

1. Methods of Floating New Issues

1. Public Issue (IPO): Offer to general public.
2. Rights Issue: Offer to existing shareholders.
3. Private Placement: Offer to a select group of investors (QIBs).

2. The IPO Process (Book Building)

Step 1: Appoint Merchant Banker

• The Lead Manager who handles the entire process.

Step 2: File DRHP (Draft Red Herring Prospectus)

• Submitted to SEBI for approval. Contains all company details.

Step 3: Price Discovery (Book Building)

• Instead of a fixed price, a Price Band (e.g., ₹100 - ₹105) is announced.
• Investors bid within this range.
• The price at which maximum demand is met becomes the Cut-off Price.

Step 4: Allotment & Listing

• Shares are allotted to investors.
• Shares are listed on Stock Exchange for trading.

3. ASBA (Application Supported by Blocked Amount)

• Earlier, money was deducted immediately on application.
• Now, under ASBA, money remains in the investor's bank account but is blocked.
• It is deducted only if shares are allotted.
• Benefit: Investor earns interest on the blocked amount.

Summary

• IPO: Initial Public Offer.
• Book Building: Bidding process to find price.
• DRHP: Preliminary prospectus filed with SEBI.
• ASBA: No debit until allotment.

Quiz Time! 🎯

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