When it comes to the share market, companies always seek to improve their financial standing to help with growth and expansion. Following an initial public offering (IPO), it may still require additional capital for various strategic initiatives.
This is where FPO stands out as the preferred choice. The full form of FPO in the share market is a Follow-on Public Offering. FPO, meaning in the stock market, refers to the process whereby a publicly listed company raises additional capital to the public.
Competent investments in the share market require understanding IPOs as well as FPOs in detail. Hence, here is a comprehensive overview of what FPO is in the share market, how it is different from IPO and more.
What is FPO in the Share Market?
FPO meaning in share market is Follow-on Public Offering. It refers to the process where a company that is already listed publicly on the market, offers more shares. The purpose of an FPO in the share market is to raise additional funds for the company.
Companies primarily need funds for purposes like expansion plans, debt reduction, or even funding of corporate activities like research and development.
If you are an existing shareholder, FPO provides you with opportunities to buy more shares or dilute your holdings by issuing new shares, which increases the total share count and reduces the percentage ownership.
Also, if you are an investor looking for attractive investment opportunities, FPO in the stock market gives you an opportunity to acquire significant ownership in the company.
But how does an IPO differ from an FPO in the stock market?
Difference Between IPO and FPO in Stock Market
| IPO in Stock Market | FPO in the Stock Market |
| It is a process where a private company goes public for the first time by issuing shares to the general public. | It is a process where an already listed public company issues additional shares to the public. |
| You do not have access to previous market trends or company performance in the stock market for investment analysis. | You have access to previous market trends, company performance records as well as financial records for market analysis. |
| IPOs in the stock market are used by private entities to mainly raise funds for the expansion of business or related corporate purposes. | FPO in Stock Market is used by an already listed company to raise additional funds for mainly debt reduction or business expansion. |
| It attracts investors who are keen to invest in companies that are in the early stages of growth and can translate into long-term investment stocks. | It mainly attracts investors who wish to invest in already established companies. |
| IPOs in the stock market require more extensive regulation and compliance due to the risks associated with them. | FPOs in the Stock Market have fewer regulatory requirements, as they are already listed. |
Types of FPO in Share Market
Dilutive FPO in Share Market
Dilutive FPO is a process in which a company increases the number of outstanding shares by issuing new shares to the public. This dilutes the ownership of the existing shareholders as new shares are added to the pool. Hence the name Dilutive FPO.
The main objective of Dilutive FPO is to raise additional capital for the company’s use. Offering additional shares helps the company generate funds that can be used for its growth. It also enhances its shareholder value by improving the company’s financial health, leading to higher future earnings and stock price appreciation.
Non-dilutive FPO in Share Market
Unlike Dilutive FPO, Non-dilutive FPO does not increase the total number of shares. Non-dilutive FPO is a process where the existing shareholders of a company sell their private shares to the public.
This makes all the profits from the sales of shares go to the previously existing shareholders. This makes Non-dilutive FPOs an excellent way for existing shareholders to give up ownership without actually affecting the company’s share capital or earnings.
The key difference between Dilutive FPO and Non-dilutive FPO is their impact on the company’s ownership structures and finances. Dilutive FPOs can increase overall outstanding shares and lead to potential dilution of ownership and earnings per share. Non-dilutive, on the other hand, does not affect the ownership structure as well as the earnings per share.
Why do Companies Need FPO?
Opting for a Follow-on Public Offering(full form of FPO in share market) can help a company raise additional funds. Moreover, conducting a Dilutive FPO can provide the company access to a significant amount of funds. This capital can be used to support the company’s growth initiatives and enhance shareholder value.
Issuing an FPO diversifies a company’s funding sources by enabling it to raise capital from public equity markets in addition to traditional financing methods like loans. This reduces reliance on debt and can improve financial stability. By increasing the number of shares available for trading, an FPO enhances the liquidity of the company’s shares, making it easier for you to buy and sell shares without significantly affecting the stock price.
Conclusion
Understanding what is FPO in the share market can help you make informed investment decisions. Timing an investment well and staying informed about the basic stock market rules can help you navigate the stock market smoothly.
However, relying on a dependable SEBI-registered financial advisory firm can make the entire process stress-free. Whether you are new to the stock market or an experienced investor, expert advice and personalized portfolios can enhance your investment strategy.
Know more about
IPO | Current IPO | Upcoming IPO | Listed IPO
Does the price value of the shares change after a Follow-on Public Offering( full form of FPO in the share market)?
Yes, the price value of a share can change after a Follow-on Public Offering( full form of FPO in the share market). However, factors like the demand of the stock, market conditions and company fundamentals play an important role in deciding the impact of the share price.
Is there a specific pricing for FPOs?
The FPO pricing depends on demand, market factors and the amount the company wants to raise. FPOs are usually priced lower than the current market price.
Does FPO reduce share price?
An FPO might lead to a reduction in share price due to an increased supply of shares in the market.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.