MARKET TUTORIALS BY MANSUKH NOV 2010

                   Jargon of IPO and FPO

The juggling of stock market is always being surrounded by stocks traded on the exchanges and IPO, FPO, primary or secondary markets are the display places where we can find these stocks easily available.IPOs and FPOs are the route by which the stocks are poured into the markets and if we want to invest into that we should understand the different concepts used while issuing the share thorough IPO and FPO.

IPO and FPO

Initial Public Offers (IPO) and Follow on Offers (FPO) are the part of the primary markets and the difference between them is that in IPO is the selling of securities to the public in the primary market. It is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuer's securities.The sale of securities can be either through book building or through normal public issue.Whether FPO means an issuing of shares to investors by a public company that is already listed on an exchange. An FPO is essentially a stock issue of supplementary shares made by a company that is already publicly listed and has gone through the IPO process.

Draft Offer document

'Draft Offer document'means the offer document in draft stage.The draft offer documents are filed with SEBI, atleast 21 days prior to the filing of the Offer Document with ROC/SEs. SEBI may specify changes,if any,in the draft Offer Document and the issuer or the lead merchant banker shall carry out such changes in the draft offer document before filing the Offer Document with ROC/SEs.The Draft Offer Document is available on the SEBI website for public comments for a period of 21 days from the filing of the Draft Offer Document with SEBI.

Prospectus

A large number of new companies float public issues.While a large number of these companies are genuine, quite a few may want to exploit the investors.Therefore,it is very important that an investor before applying for any issue identifies future potential of a company.A part of the guidelines issued by SEBI (Securities and Exchange Board of India) is the disclosure of 23 information to the public. This disclosure includes information like the reason for raising the money, the way money is proposed to be spent, the return expected on the money etc.This information is in the form of 'Prospectus'which also includes information regarding the size of the issue, the current status of the company,its equity capital,its current and past performance, the promoters,the project,cost of the project,means of financing, product and capacity etc.It also contains lot of mandatory information regarding underwriting and statutory compliances.This helps

Book Building Process or Normal Public Issue

Book Building is basically a process used in IPOs for efficient price discovery.It is a mechanism where,during the period for which the IPO is open,bids are collected from investors at various prices,which are above or equal to the floor price.The offer price is determined after the bid closing date. In case of Book Building,the demand can be known everyday as the book is being built.But in case of the public issue the demand is known at the close of the issue.Price at which securities will be allotted is not known in case of offer of shares through Book Building while in case of offer of shares through normal public issue, price is known in advance to investor.Under Book Building,investors bid for shares at the floor price or above and after the closure of the book building process the price is determined for allotment of shares.

Cut-Off Price

In a Book building issue, the issuer is required to indicate either the price band or a floor price in the prospectus.The actual discovered issue price can be any price in the price band or any price above the floor price.This issue price is called “Cut-Off Price”. The issuer and lead manager decides this after considering the book and the investors' appetite for the stock.

Issue Price

The price at which a company's shares are offered initially in the primary market is called as the Issue price. When they begin to be traded, the market price may be above or below the issue price.