What decides the listing price of a company after IPO?

When an existing company goes public by issuing initial public offerings of shares then we have to look its past performance and the area in which it is operating. These two are the crucial factors which decide the opening prices of its shares once they are listed in the stock exchange. Generally the issue price of these shares is less and it is hoped that they would quote higher in a favourable market. Sometimes what happens is that in the initial euphoria they quote higher but soon come down to their issue level and even much below to that and the investors are disappointed.

Whenever a good company goes public and issues shares there is a craze in the market and people run to grab a part of that by applying with multiple applications and try to get allotment of more shares. Due to oversubscription, less shares are allotted against the asked ones. In such a situation they quote high also and the investors sell them to make a quick buck. But every time this formula does not work as the ways of share market are unpredictable.

One has to be cautious on this front and should apply only in companies which have a good track record and good demand for their products or services in the market. We should not go by the media hype about a company in this regard. Even going by the brand name would not be advisable.

1. There are two types of IPOs. One is called fixed price IPO. The second one is the Book Building IPO issue. Some companies give a combination of these two types.
2. The company and its underwriters evaluate the total assets, liabilities, and all other financial aspects of the company. Based on the figures they will decide the price and the quantum of the IPO.
3. In the second one, there is no fixed share price and there will be a range. The lowest price in the range is named as the 'floor price' and the highest price is called. the 'cap price'.
4. Based on the company's reputation and other market conditions some shares will get oversubscribed. The shares will be issued on a pro-rata basis. In this atmosphere, the share prices will shoot up and share prices will increase. But sometimes the expected result will not come and the investors will lose. So we should study the market correctly and then decide whether to go for it or not.

When a company offers any IPO Stock and the price band (listing price) is calculated by the company on their assumption that they think what the price must be and the company (company secretary of the company) calculates the price is coming after doing the valuation of the company is going to be listed. This listed price goes up or down on the basis of buy or sell of stock in the market.