FPOs vs QIPs: Everything You Need to Know Before Investing

Public companies often raise additional funds after their initial public offering (IPO). Two common ways to do this are through Follow-on Public Offerings (FPOs) and Qualified Institutional Placements (QIPs). Both help companies strengthen their finances, but they function differently and serve different types of investors.

Before investing in either, it’s important to know how each one works, who can invest, and what the key differences are. This article explains the basics and provides a clear comparison to help you make informed decisions.
 

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What Is an FPO?

A Follow-on Public Offering (FPO) is when a listed company issues new shares to the public to raise more capital. This happens after the IPO and allows retail and institutional investors to buy shares directly from the company.

There are two types of FPOs:

• Dilutive FPO: The company issues new shares, which increases the total share count and may reduce the earnings per share.
• Non-dilutive FPO: Existing shareholders sell their shares to the public, and no new shares are created.

Companies usually go for an FPO when they need funds for expansion, debt repayment, or new projects.

What Is a QIP?

A Qualified Institutional Placement (QIP) is a private placement of shares made by a listed company to qualified institutional buyers (QIBs). These include mutual funds, banks, insurance companies, and foreign investors registered with SEBI.

Unlike an FPO, QIP does not involve the general public. It is faster and more flexible because it skips several regulatory steps that public issues usually need.

QIPs help companies raise capital quickly, often at market-driven prices, with limited dilution and lower costs.

FPO vs QIP: Key Differences

Understanding the difference between an FPO and a QIP is essential for anyone looking to invest. Here's a side-by-side comparison to make it easier:

When Do Companies Use FPOs or QIPs?

Companies choose between FPOs and QIPs based on how fast they need funds, how much they want to raise, and who they want to target.

They usually opt for an FPO when they want to raise money from a broader base of investors, especially retail participants. FPOs also help improve market liquidity and expand the company’s shareholder base.

QIPs, on the other hand, are suitable when the company wants to raise money quickly and prefers dealing with large institutions. They allow firms to attract strategic investors and complete fundraising within days.

What Should Retail Investors Know About FPOs?

FPOs can be an opportunity to invest in companies you already follow or trust. The price of shares in an FPO is often set below the market value to attract investors. This can result in short-term gains if the market responds well to the issue.

However, it’s essential to check the company’s reason for raising funds. A strong balance sheet, clear expansion plans, and good past performance are positive signs. If the FPO aims to repay debt, that’s fine — but avoid companies raising capital simply to stay afloat.

Investors should also consider the dilution effect. If new shares are issued, existing share value may drop slightly.

What Should You Know About QIPs as a Retail Investor?

QIPs do not allow direct participation from retail investors. But they still impact the stock you hold or plan to buy.

When a company announces a QIP, it shows confidence in its growth and a willingness to bring in long-term investors. QIPs also signal that institutional investors see value in the business, which is often a good sign.

However, if the placement is done at a price much lower than the current market rate, it may temporarily affect stock prices. Keep an eye on how the stock performs post-issue.

What Are The Regulatory Requirements For A QIP?

QIPs in India are governed by strict regulatory requirements set by the Securities and Exchange Board of India (SEBI). Here are the key regulatory aspects:

1.    Eligibility Criteria:

• The issuer must be a listed company with a minimum public shareholding of 25%.
• The company should have complied with listing requirements for at least 6 months before the QIP.

2.    Issue Size:

• The aggregate of all QIPs made by the company in a financial year must not exceed five times the company's net worth.

3.    Pricing:

• The issue price cannot exceed the average weekly high and low closing prices during the two weeks preceding the relevant date.

4.    Lock-in Period:

• Allotted securities are subject to a lock-in period of one year from the date of allotment.

5.    Investor Restrictions:

• Only Qualified Institutional Buyers (QIBs), as defined by SEBI, can participate in a QIP.
• Promoters or related parties of the issuer are not allowed to participate.

6.    Disclosure Requirements:

• A placement document containing all material information must be issued to QIBs.
• The document should include risk factors, recent developments, market price information, and financial statements.

7.    Board and Shareholder Approval:

• The company must obtain board approval and a special resolution from shareholders before initiating a QIP.

8.    Timing Restrictions:

• There must be a gap of at least two weeks between two QIPs.
• QIPs cannot be made during pending price-sensitive information or corporate actions.

9.    Reporting:

• The company must report the details of the issue to the stock exchanges within a specified timeframe.
• These regulations ensure transparency, protect investor interests, and maintain market integrity in the QIP process.

Are These Investment Options Risky?

All equity investments carry some level of risk. FPOs and QIPs are no different. An FPO might fail if there’s not enough demand. A poorly priced QIP may result in share price pressure in the short term.

Before investing, review the company’s track record, management strength, debt levels, and the purpose of the fundraising. This helps reduce risk and increases your chances of choosing the right opportunity.

Which One Should You Track Closely?

If you're a retail investor, FPOs offer direct access. Keep a watch on announcements, especially for companies with good fundamentals and growth stories.

QIPs are important from a market sentiment point of view. Large institutional participation shows trust and may boost investor confidence. You can monitor the outcome of QIPs to decide whether to invest in the stock later.

Conclusion

FPOs and QIPs both serve as fundraising tools for listed companies, but they cater to different audiences and operate on different timelines. As a retail investor, knowing how these offers work helps you navigate market events more effectively.

FPOs allow public participation and often come at attractive prices. QIPs, while closed to individual investors, offer valuable cues about institutional interest and company health.

Understanding both structures gives you a broader view of the equity market and helps you make better investment decisions — whether you’re buying directly or watching from the sidelines