Day 90 – Q.2 Follow-on Public Offer (FPO) is a popular fundraising method used by companies to raise capital from the public. What is the concept of FPO, and how does it differ from Initial Public Offer (IPO)? What are the benefits of FPO for companies and investors, and how can it impact the economy? Explain.

Follow-on Public Offer (FPO) is a popular fundraising method used by companies to raise capital from the public. What is the concept of FPO, and how does it differ from Initial Public Offer (IPO)? What are the benefits of FPO for companies and investors, and how can it impact the economy? Explain.

फॉलो-ऑन पब्लिक ऑफर (एफपीओ) एक लोकप्रिय धन उगाहने वाला तरीका है जिसका इस्तेमाल कंपनियां जनता से पूंजी जुटाने के लिए करती हैं। एफपीओ की अवधारणा क्या है और यह इनिशियल पब्लिक ऑफर (आईपीओ) से कैसे अलग है? कंपनियों और निवेशकों के लिए FPO के क्या लाभ हैं और यह अर्थव्यवस्था को कैसे प्रभावित कर सकता है? व्याख्या करें।

Approach

Candidates can start the answer with basic idea of FPO and how its different from the IPO and also state several benefits to different stakeholders and impact on the overall economy.

Introduction

Follow-on Public Offer (FPO) is a process through which a publicly-traded company can issue additional shares to the public and raise capital. It is a type of public offering in which an already listed company offers its shares to the public for sale, after its initial public offering (IPO).

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Difference:

• The key difference between an IPO and an FPO is that an IPO is the first time a company issues shares to the public, while an FPO is a subsequent issue.
• An IPO is typically used by a company to raise capital for the first time and establish a public market for its shares.
• In contrast, an FPO is used by a company that has already gone public and wants to raise additional capital by issuing more shares to the public.

Benefits for Companies:

• Raising Capital: FPO enables companies to raise capital from the public and institutional investors, which can be used for business expansion, research and development, and other activities.
• Enhanced Visibility and Liquidity: FPO helps in increasing the visibility of the company and its shares, which can lead to higher demand and liquidity for its shares.
• Reduced Debt Burden: Companies can use the funds raised through FPO to pay off their debts, which can lead to a reduction in their interest costs and a more favorable debt-to-equity ratio.

Benefits for Investors:

• Access to Quality Stocks: FPO provides investors with the opportunity to invest in quality stocks of established companies with a proven track record.
• Potential for Capital Appreciation: FPO offers the potential for capital appreciation as the share prices of the company may increase in the future.
• Diversification of Portfolio: FPO provides investors with an opportunity to diversify their portfolio and reduce risk.

FPO can also have a positive impact on the economy by:

• Promoting Entrepreneurship: FPO enables entrepreneurs to raise capital and start new ventures, which can contribute to the overall growth of the economy.
• Encouraging Investments: FPO can encourage investments in the stock market, which can lead to higher economic growth and development.
• Improving Corporate Governance: FPO encourages companies to adopt better corporate governance practices as they become more accountable to their shareholders.

Conclusion

Overall, the use of FPOs can help to promote capital market development, foster entrepreneurship, and support sustainable economic growth in India. In turn it can boost economic growth by creating jobs, increasing productivity, and stimulating demand for goods and services.