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What is the role of an IPO in the Stock Market?

M.R Kumar, Chairperson of LIC of India at the listing Ceremoney at the BSE in Mumbai, India on tuesday May 17th 2022. Photographer: Samyukta Lakshmi/ BloombergM.R.�Kumar, chairman of Life Insurance Corp. of India (LIC), center, at LIC's listing ceremony at the Bombay Stock Exchange (BSE) in Mumbai, India, on Tuesday, May 17, 2022. State-run insurer Life Insurance Corporation of India plunged early in its Mumbai trading debut after a�record�initial public offering that priced at the top of the range and was oversubscribed nearly three times. Photographer: Samyukta Lakshmi/Bloomberg (Bloomberg)Premium
M.R Kumar, Chairperson of LIC of India at the listing Ceremoney at the BSE in Mumbai, India on tuesday May 17th 2022. Photographer: Samyukta Lakshmi/ BloombergM.R.�Kumar, chairman of Life Insurance Corp. of India (LIC), center, at LIC's listing ceremony at the Bombay Stock Exchange (BSE) in Mumbai, India, on Tuesday, May 17, 2022. State-run insurer Life Insurance Corporation of India plunged early in its Mumbai trading debut after a�record�initial public offering that priced at the top of the range and was oversubscribed nearly three times. Photographer: Samyukta Lakshmi/Bloomberg (Bloomberg)

  • Initial public offerings (IPOs) allow companies to raise funds by selling shares in the primary market. We explain this in detail in this post.

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IPO is an abbreviation for Initial Public Offering, which means the company offers it’s fresh shares to the public for the very first time. In a way, the company chooses to give up it’s ownership to stakeholders.

Every company is in need of funds in order to expand its activities, amalgamation or acquisition of other companies because of which IPOs are introduced in the market as a good amount of funds are raised from the process.

Initial Public Offerings are considered a big deal in stock market calendars, as the company can use it as a marketing venture for their products and services for new customers in the market.

Purpose of IPO

Whenever a company goes public it is inferred that the company has become successful and requires funds to expand further. IPOs can also be introduced for mergers and acquisitions, in case a company is thinking of acquiring another business it can offer it’s share as a payment.

IPO is also a rewarding time for business owners as they earn millions the day the company decides to go public as they award themselves with a significant portion of initial shares of the stock.

Function of IPO in economy

Number of Initial Public Offerings issued at a time explains the condition of the economy and the stock market. As during the recession, not many investors consider it worthy to invest in stocks as the stock market itself goes down during recession and depression time periods.

While if IPOs see a boom in their bidding then it can be concluded that the economy is in the repairing mode and the economy is churning again and it’s fruitful to invest and the economy has a wide range of opportunity at the moment.

Initial Public Offerings is considered a crucial time for the stock market, as the investors can earn a good amount of funds over the long run if the company chosen has been a good performer in the market.

Choosing a company for investing in their respective IPOs is an extremely crucial part as it can either multiply your investment or can bring it down to nil.

Also, SEBI scrutinises companies before they issue their stocks in the market and provide all the necessary information to the investors so that investors are informed and can take their decision wisely.

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