WHY the 200-person cap? If you offer to more than 200 people, the law treats it as a deemed public issue — because reaching that many people looks like tapping the general public, and public protection rules must kick in.
WHY only QIBs? Regulators reason: these are professionals with research teams. They don't need the same protection a small retail investor does. So SEBI drops most of the disclosure burden → the raise happens in days, not months.
The single most important number in a QIP is the floor price — the minimum price at which shares can be issued.
HOW we get there (first principles):
Problem: if a company could issue shares at any price, insiders could dump cheap shares to friendly institutions, robbing existing shareholders.
Fix: anchor the price to the recent market price — something the public set, not the company.
WHY an average, not the single last close? One day's price can be manipulated or noisy. Averaging over 2 weeks smooths out spikes → harder to game.
WHY allow a discount? Institutions buy in bulk and can't easily exit; they need a small incentive. SEBI permits up to a 5% discount on the floor price.
No — only QIBs; retail can buy later in the secondary market.
How is the QIP floor price set?
Average of the 2-week high & low of the VWAP before the relevant date.
Maximum discount allowed on QIP floor price?
5%.
QIP floor price if 2-week high=₹210, low=₹180?
(210+180)/2 = ₹195.
IPO vs QIP main difference?
IPO = unlisted company going public (retail included); QIP = already-listed company raising more from institutions only.
Why average the price over 2 weeks?
To smooth out single-day noise/manipulation and set a fair anchor.
Recall Explain it to a 12-year-old (Feynman)
Imagine a lemonade stand that already sells to the whole street (that's a listed company). It wants money to buy a bigger machine. Instead of asking every kid on the street again (slow, messy), it quietly asks a few rich grown-ups who understand business to put in money in exchange for a share of the stand. That quiet, few-people sale is a private placement; when those grown-ups are big money-institutions, we call it a QIP. To keep it fair, the price they pay must be close to what the stand's shares are already trading for — not some secret cheap price.
Dekho, ek company jo pehle se stock exchange pe listed hai, usko baad mein aur paisa chahiye — expansion ke liye ya karza chukane ke liye. Ab dobara pura public IPO/FPO karna bahut slow aur mehnga hota hai, saara paperwork aur SEBI ki lambi process. Isliye ek shortcut hai: private placement — yaani shares seedhe kuch chunninda bade investors ko bech do, aam public ko nahi. Rule: ek saal mein maximum 200 log tak hi offer kar sakte ho (QIBs aur ESOP employees isme count nahi hote). Agar 200 se zyada ko offer kiya, to wo "deemed public issue" ban jayega aur poora public process lagega.
Iska sabse popular listed-company version hai QIP (Qualified Institutions Placement). Isme shares sirf QIBs ko milte hain — matlab mutual funds, banks, insurance companies, FPIs, pension funds. Ye log professional hain, apna risk khud samajh sakte hain, isliye SEBI inhe kam protection deta hai aur raise sirf kuch dino mein ho jata hai. Retail investor QIP mein directly nahi khareed sakta — bas baad mein secondary market se le sakta hai.
Sabse important cheez hai floor price. Company jaisi chahe waisi cheap price nahi rakh sakti, warna purane shareholders ka nuksaan hoga. Isliye SEBI kehta hai: floor price = pichle 2 hafton ke high aur low ka average. 2 hafte ka average isliye lete hain taaki ek din ka manipulation ya spike effect na kare. Aur maximum 5% discount de sakte ho institutions ko lubhaane ke liye — usse zyada nahi.
Yaad rakho: IPO aur QIP alag hain. IPO = unlisted company pehli baar public jaati hai (retail included). QIP = pehle se listed company, sirf institutions se aur paisa uthati hai. Ye difference exam aur real investing dono mein bahut poocha jata hai!
Test yourself — Primary vs Secondary Market & IPOs
