With reference to Initial Public Offering IPO consider the following statements 1 It is the offering...........

Economic Affairs Financial Markets

With reference to Initial Public Offering (IPO), consider the following statements:

1. It is the offering of a stock of a company for the first time in the secondary capital market.

2. Foreign Institutional Investors are not permitted to invest in IPOs in India through stock exchanges.

Which of the statements given above is/are correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

New stocks and bonds are created and sold to investors in the primary capital market, while securities are traded by investors on the secondary capital market.
When a company publicly sells new stocks and bonds for the first time, it does so in the primary capital market. This market is also called the new issues market. In many cases, the new issue takes the form of an initial public offering (IPO). When investors purchase securities on the primary capital market, the company that offers the securities hires an underwriting firm to review it and create a prospectus outlining the price and other details of the securities to be issued. Hence statement 1 is not correct.
As per Section 15 (1) (a) of the SEBI FII Regulations, 1995, a Foreign Institutional Investor (FII) could invest in the securities in the primary and secondary markets including shares, debentures and warrants of companies unlisted, listed or to be listed on a recognized stock exchange in India. In fact FIIs are very active in the over the counter (OTC) markets and in the IPO market in India. However, subsequent to SEBI (FPI) regulations, FIIs are allowed to invest only in listed or to-be listed entities and only through stock exchanges. The Reserve Bank of India monitors the ceilings on FII/NRI/PIO investments in Indian companies on a daily basis. Hence statement 2 is not correct.