Investing in the Indian stock market will not only gift
you the chance of making lots of money, but occasionally it will also pose a
threat in your winning streak, if you are not judicious in managing your
finance or if you made a bad call in anticipating a stock. The stock market is
not always about winning, but it is more about learning from every experience
and using the knowledge to identify opportunities and threats in future
investing ventures.
One of the most popular and
highly rewarding ways of investing in the Indian stock market is IPO (Initial Public Offering and FPO (Follow on Public Offer). Though
the former is capable of returning on investment in a big way, as the stocks
prices may hit the roof, depending on the quality of services/products and a
competent business model that is innovative and capable of differentiating itself
from it’s competitors. On the other hand returns on FPOs maybe comparatively lower
than an IPO, but the major advantage of an FPO is that you can invest in an
already established public enterprise with huge market capitalization.
First of all it is important to
find out why a business feels the need to go public and raise finance from the
public. The answer to this is after a certain point of time successful
businesses expand to a point, their own personal investment or from their partners
are not enough to run the complex web of functions in the business. And
borrowing from the banks and other debts instruments may not be able to raise
sufficient financial backup. This is when raising money from the public comes
into picture with floating of shares through IPOs.
Every other company who had ever
gone public issued IPOs and even if they are already listed in BSE (Bombay
Stock Exchange) and NSE (National Stock Exchange), the major Indian stock exchange,
still these established companies need to keep pumping fresh money in their
enterprise to maintain a steady course in running the business. In this case
they issue an FPO (Follow on Public Offer) and it enables them open their gates
for investors to be a part of a large company and contribute in it’s business
ambitions and also claim a fraction of their profits too.
Even the pricing of shares in an
IPO and FPO are different from one another. For instance the share prices of a
company issuing an IPO is based on the price and collective secondary market determines
the actual price post listing after additional information inflows or analysis.
Whereas, in an FPO price is already established and gains or losses will be
marginal, and there is no new information for the market to process or analyze.
