The introduction of demat accounts in India has had a significant impact on the initial public offering (IPO) market. Demat accounts have made it easier and more efficient for investors to participate in IPOs, resulting in increased participation and liquidity in the market. In this article, we will discuss the impact of demat accounts on the Indian IPO market.
Demat accounts have simplified IPO applications and allotment. Previously, investors had to apply for IPOs through physical application forms, which were often difficult to obtain and involved lengthy procedures. With the advent of demat accounts, investors can apply for IPOs online through their demat accounts, making the process quicker and more convenient. This has resulted in a significant increase in IPO applications.
Demat accounts have also made share allotment more efficient. Previously, shares were allotted through physical share certificates, which were often delayed or lost in transit. With demat accounts, shares are credited directly to investors’ accounts, reducing the time and cost associated with the allotment process. This has resulted in a faster and more reliable allotment process, which has increased investor confidence in the IPO market.
The introduction of a demat account has also improved share liquidity in the secondary market. Previously, investors had to wait for physical share certificates to be issued and delivered before trading shares on the secondary market. With demat accounts, shares are credited to investors’ accounts immediately after allotment, allowing them to trade shares on the secondary market without delays. This has increased share liquidity and has resulted in more efficient price discovery in the market.
Another impact of demat accounts on the IPO market in India is the increased participation of retail investors. Previously, retail investors were often excluded from IPOs due to the limited availability of application forms and lengthy application procedures. With demat accounts, retail investors can apply for IPOs online, making the process more accessible and convenient. This has resulted in an increase in retail investors participating in IPOs. This has further increased the liquidity of shares on the market.
The introduction of demat accounts has also made it easier for companies to raise funds through IPOs. With the increased participation of investors, companies can raise larger amounts of capital through IPOs. This has resulted in an increased number of companies entering the IPO market, leading to increased competition and increased choice for investors.
However, demat accounts also pose challenges in the IPO market. One of the major challenges is the risk of cyberattacks and unauthorized access to demat accounts. Investors need to ensure that their demat accounts are secure and take the necessary precautions to protect their investments. Another challenge is the risk of fraudulent activities in the IPO market, such as price manipulation and insider trading. Regulators need to ensure that the IPO market is transparent and fair for all investors.