Companies frequently turn to a variety of strategies in the ever-changing stock market environment to raise money and grow their business. A Follow-on Public Offering (FPO) is one such technique. Following their initial public offering (IPO), firms can raise capital from the public markets with the help of FPOs, which are an essential tool. This piece dives into the subtleties of FPO in share market, its benefits, and its ramifications in the context of the share market.
What is FPO in share market?
A Follow-on Public Offer is the full name of an FPO in share market. It is the procedure by which businesses provide their investors with a secondary additional share. Capitalizing money for the companies is the primary goal of FPO. Usually, the process is started to draw in a sizable number of investors and offer a discount on the price. If the businesses need money for a new project or to settle some outstanding debts, they provide FPO.
A company’s decision to launch a first public offering (FPO) is a sign that it is growing and expanding, which encourages investors to purchase existing shares for future profits. You can sign up for the online stock market course to learn everything there is to know about FPO meaning in the share market and to become an expert in this area.
Types of FPO in Share Market
- Dilutive FPO: A reduction in strength By forcing current shareholders to sell their shares to the general public, which includes venture capitalists and promoters, FPO dilutes their ownership. The proceeds of the sale go to the selling shareholders rather than the corporation.
- Fresh Issue FPO: To raise additional money, the company issues new shares through a new issue FPO. The company chooses how to use the funds it raises from the sale of these shares. They can be applied to capital investments, debt repayment, and business expansion. Nevertheless, the value of the shares held by current shareholders is unaffected by the issuance of FPOs.
- At-the-Market Follow-on Public Offering: This is also referred to as an ATM Follow-on Public Offering and is a small-scale, rarely used form of FPO. The companies do not use traditional methods; instead, they sell directly to the market in this ATM offering. The company raises capital as needed through the gradual sale of shares through this offering. The companies select brokers and agents to assist them in selling these shares.
Functions of FPO in Share Market
- Proposal: The company outlines the offer and the price range that will be given along with the proposal to announce the creation of an FPO.
- Approval: Following the proposal, the business needs SEBI approval before launching the FPO.
- Booking: Following approval of the request, the businesses reserve a building where bids are requested and the ultimate price is decided.
- Allotment: Following the conclusion of the bidding process, the company distributes the shares to investors in the next step.
- Share of Stocks: The shares are then listed on the stock exchange, and the companies get paid the money they have earned.
- Compliance: Post-issue compliance is the last phase, during which the business must abide by a variety of laws.
Benefits of FPO in Share Market
- Market liquidity: FPOs improve a company’s marketability, which facilitates easier buy and sell transactions for investors.
- Greater visibility: Increased focus from investors and the media as a result of FPOs usually boosts a company’s reputation and visibility in the marketplace.
- Exit plan for current shareholders: Offering their shares to the public allows current shareholders to profit from their investments through dilution FPOs.
How to Apply for an FPO?
- Open a Demat and trading account: You require a trading account and a Demat to invest in an FPO. If you don’t already have one, you can create an account with Alice Blue, which offers an easy way to trade.
- Check the company’s FPO details: To learn more about the issue, look for the FPO announcement, review the company’s financial statements, and read the red herring prospectus.
- Apply for the FPO: Applying for an FPO can be done via your stock broker.
- Bid for shares: You can place a bid within the price range that is typically included in an FPO.
- Allotment and Refund: When the bidding process closes, the allotment process starts. If you are allotted shares, they will be credited to your Demat account. If you are not awarded any shares, you will receive a refund of your bid amount.
Utilization of FPO in Share Market
- Via the FPO in March 2020, SBI Cards raised about Rs 10,000 crore.
- Through FPO, the Indian Railway Catering and Tourism Corporation was able to raise approximately Rs 640 crores in February 2020.
- In July 2018, HDFC Asset Management Company Ltd used an FPO to help raise approximately Rs 2500 crores.
- In September of 2012, Oil India Limited raised around Rs 3000 crores.
- In September 2016, ICICI Prudential Life Insurance Company Ltd raised nearly Rs 6000 crores through a fund-raising offering (FPO).
FAQs of FPO in Share Market
Q1. What is meant by FPO in share market?
The term “follow-on public offer” is FPO. This is a process by which companies that are already listed raise more money by issuing more shares on the stock market.
Q2. Examples of FPO in share market?
One of India’s top private sector banks in 2020, Yes Bank, served as an excellent illustration. The bank’s founders made the decision to sell some of their shares through an FPO to safeguard the bank’s finances in the face of growing NPAs and the requirement for additional capital. They raised roughly INR 15,000 crores, which significantly bolstered the bank’s capital base.
Q3. Can An FPO Turn a Profit?
If the business effectively uses the money raised to expand or pay down debt, an FPO can be profitable. It may, however, result in a diluting of earnings per share, which would impact profitability for current shareholders.
Q4. How Do IPO And FPO Differ From One Another?
Their nature is the main distinction. An FPO, or follow-on public offering, is a company’s subsequent issuance of shares by one that is already publicly listed. An IPO, or initial public offering, is a company’s first sale of stock to the public.
Q5. How Can I Purchase FPO Stock?
Purchasing FPO shares entails registering for a Trading account, reviewing the FPO details, submitting an application for the FPO via Net Banking, and placing a bid for the shares.
A crucial component of the stock market, public offerings allow businesses to raise money and give investors chances for future expansion and heightened visibility in the market. Even though FPO in Share Market has benefits like potential value growth and capital infusion, investors must perform careful due diligence and take several factors into account before taking part in these offerings. It is essential to comprehend the company’s objectives, assess risks, and assess market conditions when making investment decisions in FPO in share market.