RAISING CAPITAL FROM THE MARKET
The talk of the town is IPO (Initial Public Offering). IPO is the initial process of raising capital from the market.
· Why everyone gets attracted to IPO
· What is the history of IPO
· What are the methods of raising money from the capital?
Let us get into the interesting facts about the capital market.
WHY RAISING CAPITAL FROM THE MARKET:
Every company requires both long term and working capital to run the day to day business. A small group of people can invest to expand the business to a limited extend. Raising money from the market is a better option to overcome this limitation. Some of the key reasons for raising money from the market are
· Stock market provides the best platform for the sale and purchase of shares or debentures.
· Hence it is suitable for investors to invest money in the listed company.
· i8The sale of ease and the purchase is known as liquidity and gives an opportunity to invest or stake sale whenever required.
· Once the company raises the capital from the public, it enhances the credibility of the company.
· Being subject to Regulation of Company has to give a financial performance and other important information to the regulator.
· It will increase the confidence of the public in the company.
BRIEF EVOLUTION OF PUBLIC ISSUES IN INDIA:
· Initially, the public issues were monitored and regulated by the Controller of Capital Issues of India (CCI).
· We all know that the capital market in India really started after the liberalization of the Indian economy.
· During the era of CCI, permission to any company to raise capital was given by the CCI, and pricing for the issue was also determined by the regulator.
· The company could not freely determine the price issue.
· Interesting fact was, till the early 90’s CCI used to decide about the entry of any company in the stock market.
· With the dismantling of the CCI and subsequent creation of the Securities and Exchange Board of India (SEBI) in 1992 took charge of regulating the capital market.
· After the new regulation, the entire capital market rejuvenated to a new extent.
Under the new regime, companies can determine the issue price of securities freely without any regulatory interference, which gives them the confidence to the companies to take advantage of market forces.
In today’s scenario, there are two ways of pricing, fixed price, and book built. In fixed price issues, the issuer fixes the price of the securities at the beginning of the issue and the demand for the issue is known only at the end of the issue.
For the book build method, the bids are collected from investors at various prices within the price band specified by the issuer. The process is directed towards both the institutional as well as retail investors. The issue price is determined after the bid closure based on the demand generated in the bid process.
METHOD OF RAISING CAPITAL IN MARKET:
There are different methods to raise money from the market. The decision is based on the company requirement but ensures the balance between debt and equity.
A company can use the public issue method or private placement methods.
The management has to analyze the pros and cons and decide. What is the best suitable option for the interests of the company? Broadly speaking, the methods are shares, debts, venture capital, and private equity, etc. Here we can list out the methods of options available for raising money from the market.
· Initial Public Offer (IPO)
· Further Public Offer (FPO)
· Rights Issue
· Private Placement
· Depository Receipts
· Convertible securities/debt instruments (Bonds)
· Non-convertible debentures (NCD)
· Venture Capital
· Angel Fund
· Private equity
· Today stock exchanges operate around the world and exponentially growing trading volume.
· It indicates that many people are aware of the financial market and importance.
· Mr. Dhirubai Ambani raises the money from the capital market in the earlier period and got approval from CCI.
· Just imagine without capital market where reliance stand out today?
· Many of them have a different perception about the stock market, someone thinks it is a place for gambling, actually, it is the perfect place to invest.
· Many companies raise capital from the market and used the capital to expand their network. Ex. Reliance industries ltd.