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10th October 2024 (9 Topics)

Initial Public Offering (IPO)

Context

Hyundai Motor India Ltd. (HMIL) announced India’s largest ever initial public offer (IPO) of Rs 27,870 crore.

What is Initial Public Offering (IPO)?

  • An Initial Public Offering (IPO) is a crucial process for companies looking to raise capital by selling securities to the public in the primary market.
  • It allows businesses to access funds for growth and expansion while enhancing their credibility and visibility.
  • In an IPO, investors buy shares directly from the company, becoming its owners and contributing to its share capital.
  • This influx of funds enables the company to create fixed assets necessary for operations.
  • A vibrant IPO market signals a healthy economy, as it indicates investor confidence and facilitates capital formation.
  • Once shares are issued, shareholders can also sell their investments in the secondary market, ensuring liquidity.

Fact Box: Capital Market

  • The Capital market represents the “Primary Market” and the “Secondary Market”.
  • The capital market has two interdependent and inseparable segments, the new issuers (the primary market) and stock (secondary) market.
    • Primary market is used by issuers for raising fresh capital from the investors by making initial public offers or rights issues or offers for sale of equity or debt.
    • Secondary market promotes the growth of the primary market and capital formation, since the investors in the primary market are assured of a continuous market where they have an option to liquidate their investments.

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