understanding stock market with example
i want to understand , stock process ( india)in this example), for example, xyz company has 3 branches in india, wants to gather money from public , using stock listing? then what is eligibility? suppose, for example, they need 10,00,000rs, they started they stock intial value as 1000, and closing of ipo in 10days, but their stock sold only 800, 200 is not gather, in such situvation what? supposed all stocks are sold, after one week, 500 stock sold in stock market, how xyz contiue with 500 shares, if all customers wants sale , looks like no meaning of consist amount for xyz, ; expalin me , explain all these with realtime example?
ChatGPT said:
Understanding the stock process for raising money and the situations you mentioned involves breaking it down into key components. Let's explore the stock listing process, eligibility, and potential scenarios using a real-time example.
Stock Listing Process
Company's Objective: XYZ Ltd. wants to gather ₹10,00,000 from the public. It decides to issue Initial Public Offering (IPO) shares.
IPO Details:
- Number of shares:
- IPO Duration: 10 days.
- Investors can buy these shares during the IPO.
Eligibility for IPO: XYZ Ltd. must meet the requirements set by the Securities and Exchange Board of India (SEBI), such as:
- Minimum paid-up capital: ₹1 crore for listing.
- Minimum public shareholding: 25%.
- Disclosure of financials and filing a Red Herring Prospectus (RHP) with SEBI.
Scenarios
Scenario 1: Not All Shares Sold in IPO
- If only 800 shares are sold, ₹2,00,000 remains unsubscribed.
- XYZ Ltd. has two options:
- Cancel the IPO: If the subscription is below a minimum threshold (often 90% of the issue), the IPO fails. XYZ must refund the money collected.
- Revise Plan: Lower the funding target or use alternate funding methods.
Scenario 2: All Shares Sold During IPO
- Suppose all 1,000 shares are sold. XYZ collects ₹10,00,000.
- Shareholders now own the company proportionate to their shareholding.
- If an investor buys 100 shares, they own 10% of XYZ (100 shares ÷ 1,000 total shares).
Scenario 3: Shares Traded in the Stock Market
- After the IPO, shares are listed on a stock exchange (e.g., NSE/BSE).
- Investors can sell their shares to others in the secondary market.
- Example: A shareholder sells 500 shares to others. XYZ does not lose any money because the company already collected ₹10,00,000 during the IPO.
Scenario 4: Panic Selling
- If all shareholders decide to sell their shares, it impacts the stock price, not XYZ’s initial funding.
- A falling stock price signals lack of investor confidence.
- However, XYZ’s funds from the IPO remain unaffected because the IPO money was collected before shares were listed.
Real-Time Example
Zomato IPO (July 2021)
- Objective: Zomato aimed to raise ₹9,375 crores through an IPO.
- Details:
- Price Band: ₹72–₹76 per share.
- Shares Issued: Approximately 123 crore shares.
- Outcome:
- IPO was oversubscribed, indicating strong demand.
- After listing, share prices fluctuated based on market sentiment.
Key Learnings from Zomato IPO:
- The company received the IPO funds upfront.
- Post-IPO stock price volatility impacted shareholders but not Zomato’s capital.
How XYZ Handles Volatility
- Retained Capital: XYZ uses the ₹10,00,000 raised in the IPO for business expansion or other objectives.
- Stock Price Management:
- XYZ can build investor confidence by showing consistent growth, paying dividends, or buybacks.
- Market regulations prevent XYZ from directly controlling secondary market prices but encourage transparency to retain investor trust.
Summary
- XYZ Ltd. raises funds via IPO; success depends on meeting SEBI regulations and market response.
- Unsold shares may lead to IPO cancellation or funding shortfall.
- Post-IPO trading affects stock prices, but XYZ’s initial funds remain unaffected.
- Sustained growth and transparency are critical for maintaining investor confidence in XYZ’s stock.