What is QIP in Share Market Of India
Qualified Institutional Placement (QIP) is a fundraising method used by publicly traded companies to raise capital by issuing equity shares or other equity-convertible instruments to qualified institutional buyers (QIBs). QIBs are accredited investors, as defined by the market regulator.
QIPs are a popular way for companies to raise capital because they are relatively quick and easy to execute. QIPs do not require companies to go through the same rigorous regulatory approval process as other fundraising methods, such as initial public offerings (IPOs) and follow-on public offerings (FPOs).
QIPs are also attractive to investors because they offer them an opportunity to invest in companies at a discounted price. QIP issues are typically priced at a discount to the prevailing market price of the company’s shares.
|QIP in Share Market
Benefits of QIP In Share Market
Efficiency: QIP in share market is a relatively efficient way to raise capital. They can be executed quickly and without the need for a lengthy regulatory approval process.
Flexibility: QIPs offer companies a lot of flexibility in terms of the type of securities they can issue and the pricing of the issue.
Cost-effectiveness: QIPs are a relatively cost-effective way to raise capital. The fees associated with QIPs are typically lower than the fees associated with other fundraising methods, such as IPOs and FPOs.
Risks of QIPs
Dilution: QIPs can lead to dilution of the equity of existing shareholders. When a company issues new shares, the ownership stake of existing shareholders is reduced.
Market volatility: The stock market is volatile, and the price of a company’s shares can fluctuate significantly. If a company issues shares through a QIP at a time when the market is down, investors may suffer losses.
Regulatory risks: QIPs are subject to a number of regulations. If a company fails to comply with these regulations, it could face penalties or even legal action.
Who can participate in QIPs?
Only QIBs can participate in QIPs. QIBs include:
- Financial institutions: Banks, insurance companies, mutual funds, and other financial institutions are all considered QIBs.
- Foreign institutional investors (FIIs): FIIs are institutional investors who are based outside of India.
- Domestic institutional investors (DIIs): DIIs are institutional investors who are based in India.
How to invest in QIPs?
If you are a QIB, you can invest in QIPs by contacting the company that is raising the capital. The company will typically have a dedicated team that is responsible for managing the QIP process.
If you are not a QIB, you cannot invest directly in QIPs. However, you can invest in QIPs indirectly by investing in mutual funds or other investment vehicles that invest in QIP issues.
How Does a QIP Work in the Share Market?
- Company Decision: A company decides to raise funds through a QIP and obtains approval from its board of directors and shareholders, as required.
- Pricing: The company determines the pricing of the shares it intends to issue. This price is usually based on the market price or a price determined through a book-building process.
- SEBI Approval: The company submits necessary documents and disclosures to the Securities and Exchange Board of India (SEBI) for approval. SEBI ensures that the QIP is in compliance with regulations.
- Issue Period: Once SEBI grants approval, the company can proceed with the QIP. The shares are issued during a specified period.
- Allotment: The company allots shares to QIBs who have expressed interest in purchasing them. The allocation is made based on various factors, including the size of the investor’s order.
- Listing: After the QIP is completed, the newly issued shares are listed on stock exchanges, and trading commences.
Impact on Qip in Share Market
The following companies have raised capital through QIPs lately:
- Happiest Minds Technologies
- Kotak Mahindra Bank
- ICICI Bank
- Canara Bank
- HDFC Life Insurance
- HDFC Bank
- Axis Bank
- ICICI Lombard General Insurance
- Bajaj Finance
- SBI Life Insurance
- To fund growth initiatives
- To improve their capital adequacy ratios
- To reduce their debt levels
- To acquire other companies
- To prepay high-cost debt
- To meet regulatory requirements