FPO in Stock Market: Meaning, Types & Advantages

Do you know what is FPO in stock market? Companies frequently need capital to support various business operations such as expansion, debt repayment, and other financial needs. Business owners often turn to external sources of capital, as relying solely on personal savings is not sustainable. 

While business owners may initially secure funds through an Initial Public Offering (IPO), there may come a time when additional capital is required. In such cases, a Follow-On Public Offer (FPO) becomes an effective solution. In this blog, we will cover what is FPO, its working, types, benefits and more.

Definition of FPO

A Follow-on Public Offer (FPO) is the process where an already listed company issues additional shares, either to its existing shareholders or new investors. This differs from an Initial Public Offering (IPO), where a company offers its shares to the public for the very first time to raise capital for business growth.

Companies choose to conduct an FPO primarily to increase their equity base. Typically, an FPO is initiated only after the company has already completed an IPO, making its shares publicly tradable and securing initial capital. There are various reasons why a company might opt for an FPO, including business expansion, debt repayment, or financing an acquisition.

Why does a Company Need FPO? 

Companies use a Follow-on Public Offering (FPO) to raise additional capital after their initial public offering, helping fund expansion, new projects, or research and development. FPO proceeds are often used to reduce existing debt, improving the company’s financial health and lowering interest costs. Issuing an FPO can increase public shareholding, helping companies comply with regulatory requirements and enhance share liquidity in the market. Companies may also use FPOs to finance acquisitions, enter new markets, or strengthen their balance sheets for long-term growth.

Overall, FPOs provide listed companies with a flexible way to access capital markets and support their ongoing business strategies.

Should You Subscribe to an FPO? 

FPOs allow you to invest in companies that are already listed and have a proven track record, making them less risky than IPOs since you can review financial history and performance data before investing. Shares in an FPO are often offered at a discount to the current market price, giving investors a chance to buy at attractive valuations and potentially profit from arbitrage opportunities.

FPOs increase liquidity and trading volume in the stock, making it easier to buy or sell shares without major price fluctuations. However, FPOs can lead to share dilution, which may reduce earnings per share and impact the stock price in the short term. It’s important to research the company’s purpose for raising funds, its financial health, and how the new capital will be used before subscribing.

Overall, FPOs can be a good investment if the company’s fundamentals are strong and the offer is attractively priced, but always weigh the risks of dilution and market sentiment before deciding.

How Does a Follow-on Public Offer Work?

After understanding what is the meaning of FPO in share market, let us understand how an FPO works:

• Appointment of Intermediaries

The company begins by appointing intermediaries like investment banks, underwriters, and financial advisors to facilitate the FPO process.

• Preparation of Offer Document

Next, the company drafts an offer document that includes comprehensive details about the FPO such as the total issue size, lot size, pricing methodology, and other key information. This document is then submitted to the Securities and Exchange Board of India (SEBI) for review and approval.

• Pricing of Shares

After receiving SEBI’s approval, the company determines the price at which the shares will be offered. Investors can apply for shares based on this fixed or price band range.

• Opening and Closing of the Offer

The FPO is open to the public for a defined period. During this window, companies allow investors to place their bids and submit applications to purchase shares. They close the offer once the bidding period ends.

• Share Allotment and Listing

After the FPO closes, the company allots shares to the investors who participate. These newly issued shares are then listed and become available for trading on the stock exchanges.

Different Types of Follow-On Public Offers 

A company can conduct its Follow-on Public Offer (FPO) through two primary methods:

• Dilutive FPO

In a dilutive FPO, the company creates and offers new shares to the public, increasing the overall number of outstanding shares. As a result, the company’s earnings per share (EPS) typically decline, since the same amount of profit is now distributed among a greater number of shares.

• Non-Dilutive FPO

In a non-dilutive FPO, existing shareholders such as promoters or major investors sell a portion of their current holdings to the public. No additional shares are issued, so the total share count remains unchanged. Consequently, this type of FPO does not affect the company’s EPS.

What are the Advantages of Follow-On Public Offers (FPOs)? 

These are the advantages of FPOs for both companies and investors:

• FPO Benefits For Companies 

Here are the advantages for companies for launching an FPO to the market:

• Raising Capital

Companies frequently utilise FPOs as a means to secure additional funds to support various needs such as day-to-day operations, research and development initiatives, or business expansion plans.

• Enhancing Liquidity

By offering more shares to the public, an FPO boosts the total number of shares available in the market. This greater availability improves stock liquidity, making it easier for investors to trade shares more efficiently.

• Increasing Financial Flexibility

Companies can use the funds raised through an FPO to strengthen their financial position. They often direct the proceeds toward reducing existing debt or financing acquisitions, which enhances their financial flexibility and strategic opportunities.

• FPO Benefits For Investors

These are the advantages for investors to invest in IPOs:

• Opportunity to Invest in Established Companies

FPOs provide investors the chance to invest in companies that have already completed their IPO and have a proven track record. This typically carries lower risk than investing in newly listed firms with limited market history.

• Potential for Capital Appreciation

If the company continues to perform well after the FPO, there is a possibility that the share price will rise, allowing investors to benefit from capital gains over time.

Top Upcoming IPOs to Watch (23rd–27th June 2025)

1. Kalpataru Ltd IPO
2. HDB Financial Services Ltd IPO
3. Globe Civil Projects Ltd IPO
4. Ellenbarrie Industrial Gases Ltd IPO
5. Suntech Infra Solutions Ltd IPO

Summing Up

At this point, hopefully, you have an idea of what is FPO. In India’s ever-evolving financial landscape, Follow-on Public Offers (FPOs) serve as a valuable tool for companies to secure additional capital and for investors to explore established investment opportunities. 

FPOs provide listed companies with an effective method to raise funds while allowing investors to support businesses with a proven track record. 

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