Stocks

Why do companies list on Stock Exchange?

Why do companies list on Stock Exchange

The year 2021 witnessed the launch of 72 IPOs on the Stock Exchange in India from January until September, and that jacked up a mammoth sum of $330.66 billion.

Moreover, taking the present matters into consideration, 35 IPOs are in the offing, which involve Aditya Birla AMC, LIC, Nykaa, Mobikwik among many others.

But, how do you explain the hysteria of the startups, several medium-sized companies, enterprises of scale, descried recently to see themselves listed on the stock exchange?

The reason that validates this frenzy is that IPOs are the medium via which privately traded or unlisted companies hoist funds from the market.

The raised capital is further put to the fruition and advancement of the enterprise.

The Concept of Listing of Securities

The process of listing stocks or securities on a stock exchange or stock market avails the shares of the enterprise to the public transactions.

When a company gets itemized on the stock exchange, the interested investors can purchase and sell the stocks of the company.

Let’s dive deeper into the procedure of a company’s listing here.

How to list a company in the stock market?

The enterprises looking forward to getting listed on the stock exchange, start by issuing an IPO.

It is strictly permitted and done when the company meets the terms and criteria set forth by the SEBI (the institution that supervises the market commotion and sets the precepts).

As the IPO is sanctioned or says the application has been approved, the interested investors, whether retail or institutional, subscribe to the IPO and contract to invest in the shares of the company.

However, the number of stocks accessible for an investor is limited, thus not every investor who applies for the IPO accomplishes the shares.

The distribution of the company shares is carried out through a random process to avoid any bias in selecting the legatees.

Once the stocks are allocated to the respective investors, they get registered on the stock exchange.

Benefits of Listing on the Stock Exchange

The direct advantages of listing on the stock exchange are several, and this is why it’s craved by most germinating companies and startups.

Here are some of the many favours that listing bestows on an enterprise.

Raise Funds

The principal objective of the listing is to attract funds for the company.

The freshly generated capital is then used to cover the expenses and enable the further growth and advancement of the enterprises.

Apart from this, the company can also use the sum to pay off or decrease its debts or liabilities. Hence, getting the company recorded on the stock exchange allows a considerable influx of funds to bear all its financial requirements.

The enterprise can further concentrate on prospective opportunities, and expansion, without worrying about bucks to quench the overheads and costs.

Liquidity and marketability of shares

Listing the stocks of a company on the stock exchange makes them accessible to the public, where they can be readily and easily bartered.

To add here, the stock exchange is the dynamic arena of purchasing and vending off securities and shares, which enables the company’s stocks to contribute to their trading hysteria.

The cataloged stocks get promptly saleable in the stock market, which stimulates the investors to possess a share in the company.

The increased trust of stakeholders

For a company to get listed on the stock exchange, it has to pass the standards and criteria fixed by the market supervising institute, that is SEBI.

This authority has rightful strict control over the financial disclosures, trading practices and actions, and corporate activities of the company.

Thus, with such stringent measures stamped in the process, it is unlikely that malpractices or frauds seep in.

This is why the companies listed are often successful in building trust in the public. And of course, meanwhile, they are advertised as well.

Exit route for existing investors

Many private companies have their stocks in hands of several shareholders which also include private investors and promoters of the company.

In case, these nominees aspire to liquidate all or some of their shares, listing on the stock exchange arises as a solution here.

This is done via announcing the stakes in the market through an Offer for Sale (OFS) and vending them off to the interested investors. Therefore, listing, here, acts as an exit medium for the current stakeholders in the enterprise. 

Possibility of takeovers

When the company is listed on the stock exchange, it gains capital therefrom to proliferate in its field and conquest the minor enterprises heading in the same arena.

The massive fiscal support facilitates the company to advance, grow and expand further. And this has straightforward manifestations in the company’s prosperity.

Employee motivation through ESOPs

Listing the company on a stock exchange favors it to employ its stakes to draw in brilliance through ESOPs (Employee Stock Ownership Plans).

Furthermore, this reduces the fiscal recompense and retention expenses for an employee, which then raises the possibility of hiring the most fitting faculty and talents.

Enhanced visibility

Further, listing the company on a stock exchange brings the company to the public eye and promotes further awareness about the brand.

This is definitely an intensely coveted factor for any enterprise build brand that is known and holds the trust of the people.

The listing can facilitate the company to enjoy the public attention, and that of investors and analysts as well, who are interested in scrutinizing the technical and fundamental facets of the company.

This, further, builds a public profile for the enterprise, which may also positively leverage the goodwill and its status in the market.

More Chunks on Listing of the Companies

Listing the company as we just saw backs them with necessary funds for its growth, but it also launches it into competitive space as the share values become strong indicators of their market perception.

In case, the company’s performance is alright, its stakes rise in demand, which further elevates its market funds, and becomes an esteemed company in the business.

Securities listing also allows the public to invest in industries with a caliber to generate wealth as well.

Bottom Line

So far, we batted around the concept of IPO, why companies crave to get listed on the stock exchange, and the related details.

IPOs are a boon to companies as they help them raise funds for growth, increase brand awareness, build trust in the public, increase the visibility of the company, and so forth.

Now, as you have that companies enjoy the pros of IPO, and so can the investors too. You just need to enquire about the objectives behind an IPO before heading on into it.

Further reading: Bseindia.com

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