Shares of Bajaj Housing Finance Ltd made a stellar debut on the stock exchanges – NSE and BSE – on Monday at Rs 150 apiece. This is a huge premium of 114% over the issue price of Rs 70. This means that investors’ investment more than doubled on the listing day.
Driven by a booming stock market, more than a dozen companies last week launched or were in the process of launching an initial public offering (IPO) to raise money from the public.
The largest of these IPOs was that of Bajaj Housing Finance, which raised Rs 6,560 crore.
The Pune-based home loan lender, a fully-owned subsidiary of the publicly-listed Bajaj Finance Ltd, had fixed a price band of Rs 66-70 per share for its IPO, which opened for subscription on September 9, and closed on September 11. It debuted on the stock exchanges on Monday, September 16.
Remarkably, the public issue was oversubscribed 67 times. This means that if the issue size was of Rs 6,560 crore, it received investment bids or demand for 67 times that amount.
Here is a lowdown on all things IPO:
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What is an IPO?
An IPO, or initial public offering, is the first time that a private company sells its shares to the public, including retail investors, high networth individuals, and institutions such as mutual fund houses, and insurance companies. These shares are then listed on the stock exchanges for trading.
A share represents part-ownership in a company selling the equities. A company brings an IPO to raise funds, which are typically used to pay off old debt, and grow the business. Based on the company’s financial performance, it revenue and profit growth, its stock price may increase or decrese over time. A consistent growth in revenue and profit will bosst demand for its shares, sending the price higher.
Components of an IPO
An IPO may consist of issuance of fresh shares as well as an offer-for-sale (OFS) component. Basically, when an entrepreneur starts a company, he invests his own capital, and may also invite a few of his friends, relatives, or a high net worth individual to invest in the company. It is not possible for anybody to straight away launch an IPO and raise money from the public. One is the regulatory guidelines. Stock market regulator Securities and Exchange Board of India mandates consistent profit record for a few years before a company is permitted to go public or raise money from the common investor. Second, a new company does not have credibility and has no track record to show for the public to invest in the company.
So, as mentioned earlier, the OFS component of the IPO is the shares that early investors sell and pocket the money. The money raised through the OFS does not go to the company. Only the funds raised through the sale of fresh shares in the IPO go to the company.
Why is there a rush of IPOs in India?
India remains the world’s fastest-growing major economy in the world. Its economy is expected to keep growing at a rapid pace. American investment bank Jefferies has predicted that India will become the third-largest economy, behind the US and China, by 2027, and its market capitalisation (meaning the value or cumulative price of all the shares listed on the stock exchanges) is expectd to double to $10 trillion by 2030. This means that scores of new businesses will be set up, even as old companies continue to grow on the back of massive internal consumption demand. Investors realise the tremendous growth potential that India’s economy and Indian businesses hold, and are eager to invest and grow their wealth. Recently, many IPOs listed on the stock exchanges at a substantial higher price than the issue price, allowing investors to make quick gains by selling the shares on the day of the listing.
A look at some of the big IPOs recently:
Company: Bajaj Housing Finance Ltd
Business: Gives home loans, loans against property
IPO Size: Rs 6,560 crore
Company: P N Gadgil Jewellers
Business: Jewellery retailer
IPO Size: Rs 1,100 crore
Company: Kross Ltd
Business: An auto parts maker based in Jamshedpur
IPO Size:Rs 500 crore
Company: Tolins tyre
Buisness: A tyre manufacturer based in Kerala
IPO Size: Rs 230 crore
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