Securities Markets – Primary Market (IPO) Basics
The stock market involves two distinct stages: The Primary Market (where shares are born) and the Secondary Market (where they live and trade). This chapter focuses on the birth: The IPO.
Primary vs Secondary Market
Primary Market (New Issues)
- Securities issued for the first time.
- Direct transaction between Company & Investor.
- Money goes to the Company (for growth).
- Example: Swiggy IPO, LIC IPO.
- Price fixed by Company.
VS
Secondary Market (Stock Exchange)
- Existing securities traded.
- Transaction between Investor & Investor.
- Money goes to Selling Investor.
- Example: Buying Tata Motors on NSE.
- Price determined by Supply/Demand.
What is an IPO (Initial Public Offering)?
An IPO is when a private company decides to sell shares to the general public for the first time. It transforms from a "Private Ltd" to a "Public Ltd" company.
Why go Public?
- To raise capital for expansion.
- To pay off debts.
- To let early investors (Founders, VCs) exit with profit.
Real World Example
📋 Case Study: The Zomato IPO (2021)
❗ Scenario:
Zomato, a food delivery giant, went public in July 2021 to raise ₹9,375 Crores.
💡 Analysis:
1. Issue Price: Fixed at ₹76 per share.
2. Demand: IPO was oversubscribed 38 times! (Huge demand).
3. Listing: Listed at ₹115 (51% premium).
4. Lesson: Investors who got allotment made 51% profit in 10 days. However, late entrants who bought at ₹150 saw prices drop later. IPOs carry both high reward and high risk.
✅ Outcome:
IPO investing requires analyzing the business model, not just the hype.
The IPO Process (Step-by-Step)
1. Hire Bankers"Company appoints Investment Bankers to manage the issue."
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2. File DRHP"Draft Red Herring Prospectus filed with SEBI offering details."
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3. Roadshow"Marketing to big investors to gauge interest."
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4. Price Band"Announcement of Price (e.g., ₹500-515) and Dates."
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5. Bidding"Retail investors apply via ASBA (UPI)."
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6. Allotment & Listing"Shares credited to Demat; Trading starts on NSE/BSE."
How to Apply? (ASBA Mechanism)
Note
Important: You don't send money to the company immediately. Under ASBA (Application Supported by Blocked Amount), the money is just "blocked" in your bank account. It is debited ONLY if you get an allotment. If not, it is unblocked.
- Log in to your Broker App (Zerodha, Groww).
- Enter Bid (Price and Lots).
- Approve UPI Mandate.
- Wait for Allotment day.
Summary
- Primary Market: The gateway for companies to raise public money.
- IPO: The event of "Going Public".
- Listing Gains: The profit made on Day 1 if listing price > issue price.
- Risk: Not all IPOs list at a profit. Some list at a discount (Loss).
Quiz Time! 🎯
Test Your Knowledge
Question 1 of 4
1. In an IPO, the capital raised usually goes to:
Next Chapter: Secondary Market & Stock Exchanges! 💹