We all are aware about IPO (Initial Public Offering) by a company but most of us are unaware about what is FPO – Follow-on public offering. Here is a window opening to know more about FPO in a general basis. Your comments of the same shall be highly appreciated and will be useful to those who is coming and reading this article lately.FPO are identical to applying for an IPO. But, the main difference is that there is a reference price. In an FPO, you know the range in which the stock has traded in the recent past and hence, can take a view about the issue price. With the media constantly hyping up the huge listing gains in a few IPOs it is natural for investors to ignore FPOs due to the usual small gap between market price and the offer price.It is easy to formulate an FPO subscription strategy, if you are already and existing share holder. But, a put option on the number of shares you hold, if the stock is traded in the futures market. Then apply in the FPO. This way, you will probably get some FPO shares at a slightly lower price and would have covered yourself, should the market price fall after the FPO shares get listed. The other objective would be to add to your holdings. Since the FPO would be at a lower price, you have an opportunity.Also, there could be some sweetness for existing share holders, which gives you an incentive to increase your holding at a lower price.What if you are not a shareholder and look at the FPO’s? If the discount to market price is 20% or more and the recent price has been stable, you are looking a far entry level. But, avoid FPOs where the size is very large, relative to the existing free float. In this case, it may be worthwhile waiting for the FPO to get over and then see the reaction on listing. A fresh supply of a large magnitude tend to keep prices down.The earnings from an FPO is as much as excited like an IPO. Generally, an FPO stock is well researched, with a price history. In an IPO, you are banking on market fancy with very little knowledge about the company.
One more reason to favor applying for FPOs is that, as opposed to an IPO, the oversubscription amount is lower, which means a higher chance of allotment. By comparing with IPO’s most FPO’s has lower risk but low-to-modest reward option. This all depends to an investors attitude.