Understand the IPO Process to Earn Wealth

Knowing the IPO process and then using that information to the fast-paced world of IPO trading is one of the simplest and most profitable methods to learn the stock market. The initial public offering IPO procedure is straightforward and easy to comprehend.

The following are the steps in the IPO process:

A private company (let’s use the Reliance IPO as an example) has developed rapidly over a number of years, resulting in a substantial profit. The company wants to grow and needs to find a way to raise a significant amount of money to do so. As a result, the firm (in this case, Reliance) employs an IPO underwriter and files for an IPO with the Securities and Exchange Commission. The company physically opens its books to the world in this first step of the IPO Process, demonstrating current earnings, past profits, investment risks, underwriting, use of proceeds (what the company will do with the money it receives from its IPO), and explaining the industry background, to mention a few.

There are critical elements in this IPO filing (also known as the IPO prospectus or “Red Herring”) that IPO investors should pay attention to. This information is required by law for the IPO Process, and we use it to our advantage.

IPO Information

 The following are the top three most crucial details:

IPO Underwriter

The example private firm (Reliance IPO) did not hire just anyone to be their underwriter. The IPO underwriter is the one who makes the transaction for the IPO and also advises the firm through the process. When it comes to taking a company public, there are excellent underwriters and terrible underwriters, and selecting the best in the business is always recommended. 


Know more: How to invest in IPO?

The IPO Process’s Use of Proceeds Statement is the most telling statement in the whole IPO prospectus. This statement explains what the firm plans to do with the revenues from the IPO. Claims like “We currently expect to use the net proceeds to us from this offering for the acquisition of, or investment in, technology, solutions, or enterprises that complement our business” are what you want to see in this statement.

Earnings

The third and last element of a potentially successful IPO is earnings. Sure, it’s the most visible, but it wasn’t always this way. There was a very large and successful IPO lined up for the market in 2021-2022, and possessing two of the three traits was pretty much all that was required for a profitable IPO to be successful. 

Earnings were crucial in some cases, but not in others. There were a number of IPOs last year in the IPO market that debuted with negative earnings but yet soared beyond 100% in a short period of time. However, once investors realized what was going on, the stock would plummet with each quarterly report. Times have changed, and in today’s IPO market, a successful IPO must possess all three of these attributes. Earnings are crucial, and seeing a company with good and growing earnings is a huge plus.

Returning to the Initial Public Offering (IPO) Process

The corporation must then set its terms after filing with the SEBI (price, amount of shares offered and when they plan to debut). After the initial filing, it usually takes around three months for the firm to publish terms and then go public. During this time, the underwriters are advertising the company’s stock and accepting “pre-market” orders. Pre-market orders are always reserved for the major players and for investors with a lot of money, and smaller investors don’t always have access to them, but there is a way around it.

The company’s debut as a publicly listed stock is the final step in the IPO process for stock traders to make IPO investments. Depending on demand, the company will begin trading on a given trade day anywhere from 9:30 a.m. to 1 p.m. on Indian stock exchanges. The larger the demand, the later the initial public offering (IPO) will be launched.

Understanding the IPO Process is a vital “need to know” process that has not only made me a lot of money over the course of my career, but also has the potential to bring investors all around the world tremendous rewards that could be life changing in some situations.