Showing posts with label listing. Show all posts
Showing posts with label listing. Show all posts

Thursday, June 22, 2017

What is Listing of Shares in Stock Market?

Business man with paper and pencil. BSE Stock Exchange in background

Listing of shares in the stock market is the act of registering the share for public trading in a stock exchange. This is a very important step that brings liquidity to the share and the financial investment. The advent of online digital platforms has enhanced this liquidity many folds. A decade back stockbrokers used to jostle and shout the bids inside the stock exchange.

The Initial Public Offer (IPO) is a very important step that precedes listing. So let us study IPO in a bit more detail and revisit listing thereafter.

Initial Public Offer (IPO)
An IPO is the act of sale of its shares by the company to the public. Sometimes the original promoters may liquidate a part of their share holding along with new issue of shares by the company. In a few rare cases the sale of shares to the public may comprise of only liquidation of existing shares by promoters of the company. The following table will demonstrate the three scenarios:

An initial public offer of shares is cumbersome and time-consuming process. First of all law shall permit it. For example a private company cannot sell shares to the public. In case a private company wants to go public, it must first convert itself into a public company. Next the issue must comply with the stock market regulations and the regulators (Securities and Exchange Board of India (SEBI).

The general steps of an initial public offer in India are as follows:

Table showing three scenarios of initial public offers

 The prospectus is a very important document based on which the investors decides to make an investment in the company. Therefore due care must be taken both by the company and the merchant/ investment banker. It must be factually correct. Future prospects should be estimated on a conservative basis. If things are over promised in the prospectus and if an investor suffers a financial loss he or she may file a lawsuit.

The shares are sold aggressively through stockbrokers. Today people can subscribe online, circumventing the tedious paper based process.

The company allots shares based on a process, at a price. The proportion of number of shares allotted to the number applied depends on how many times the public issue is oversubscribed.

This completes the process of sale of shares to public.

Listing in Stock Exchange

Returning back to listing, the company can list on one or more stock exchanges. In India the ‘Bombay Stock Exchange (BSE)’ and the ‘National Stock Exchange (NSE)’ are the most popular stock exchanges. BSE is the oldest and situated on the famous ‘Dalal Street’, which is the Indian version of the ‘Wall Street’ in New York, in the USA. Usually Indian companies list their shares on both the stock exchanges.

Often listing of a company’s shares in a stock exchange is accompanied pomp and ceremony. In the BSE the ceremonial bell heralds the listing.

Listing Gains
Depending on the popularity, size, profitability and fundamental financial strengths of the company the shares after listing can trade at much higher prices than at which the investors bought them in the IPO. These are called listing gains. Many speculative investors try to profit from such gains. Indigo airline is a good example of listing gains. The issue price was Rs.765 a share. On the listing day the share opened at Rs.856 on the BSE, touched a high of Rs.898 and closed at Rs.878.45, a listing gain of 14.83%.

Sometimes these expectations backfire. Jet Airways’ share, which was issued at Rs.1100, traded on the first day at Rs.1305, a gain of 18.63%. However, the next day the share closed at Rs.420.75, less than half its issue price.

Over Pricing the Issue

In India a very bad practice of overpricing the issue is widespread. This practice resulting extracting the entire value by the company leaving very little for the investors.

India’s beigest issue, Coal India is a typical example.

Coal India shares were issued at Rs.245. On listing (4th November 2010) they opened at Rs.291 and closed at Rs.343, with a initial listing gain of 40%. Today, on 23rd June 2017, the share is languishing at Rs.244.25.

What have long-term investors gained by purchasing the shares in the last seven years?

This is not an isolated case but a normal trend.

That is why I do not buy shares through an IPO.

You will always get an opportunity to buy the shares at lesser prices at a latter date.

Related Articles:

To conclude, listing of shares in a stock exchange is a process that enables trading in the shares and endows liquidity to the investment in the shares.

Thursday, May 11, 2017

How many companies are listed on BSE and NSE?

Tag showing "Companies  Listed on Exchanges"

Actual Question:


How many companies are listed on BSE and NSE? I thought they were 30 and 50 respectively, but I just discovered there are many more.

Answer:



Dear Friend!
As on date more than 5500 companies are listed on the BSE, as per the information available on the website of the BSE.

NSE being a relatively new exchange, about 2000 companies are said to be listed.
Perhaps you had arrived at the numbers of 30 and 50 respectively based on the composition of the two popular indices, S&P BSE Sensex (comprising 30 scrips enjoying the top 30 market capitalisation) and NIFTY which comprises of the top 50 companies.

Kindly note that for a stock market to function effectively it is required that a sufficiently large number of companies are listed on the exchange. The numbers of 30 and fifty will not suffice. Only a fairly large number of listed companies can meet the wide range investing tastes and styles of market players like domestic institutional investors (DIIs), foreign institutional investors (FIIs), high net worth individuals (HNIs), retail investors and so on.

For your kind information, though popular, Sensex and NIFTY are not the only two indices. Following is the list of various indices of the Bombay Stock Exchange:
Table listing BSE's Indices

Related Articles:



To conclude a large number of companies are listed on India’s two popular exchanges, BSE and NSE, offering a wide choice for various types and categories of investors.

Thank you,

With Best Regards


Anand


Thursday, January 19, 2017

Can an Unlisted Company Raise Capital?

Picture shows gold coins symbolising raising capital
Picture shows gold coins symbolising raising capital

Actual Question:

Can a public Ltd. company raise capital by issuing shares at the beginning without listing on any stock exchange?

Answer:

Dear Friend
Yes, raising capital by issue of shares and listing are two completely different things. I do not wish to get into technicalities, but certainly a public limited company can raise capital by issue shares without being listed on the stock exchange.
Listing on the stock exchanges simply lends liquidity to the shares - meaning investors will be able sell the shares at any time.
I read just now that the central government is proposing to list the following five public sector general insurance companies soon:
  • General Insurance Corporation of India
  • National Insurance Co. Ltd.
  • Oriental Insurance Co. Ltd.
  • New India Assurance Co. Ltd.
  • United India Insurance Co. Ltd.

All the above five are public limited companies having raised share capital but as on date unlisted.
In conclusion, yes unlisted companies can certainly raise capital by issuing shares.
Thank you,
With Best Regards
Anand