QIP in Share Market stands for Qualified Institutional Placements and is a tool for raising capital for Indian companies via institutional investment. SEBI developed QIP to allow listed businesses to improve funds by selling securities to qualified institutional purchasers (QIBs). Earlier, Indian enterprises used to raise capital from international markets since getting funds in the home market was challenging. To avoid this, SEBI established this procedure to make obtaining money in the domestic market easier.
Listed firms can raise money by selling stocks or other equity convertible instruments to eligible institutional purchasers under the QIP program. In contrast to an IPO (initial public offering), a QIP is only available to institutions called qualified institutional buyers as part of an investment option. It allows an Indian-listed firm to raise capital without submitting pre-issue documentation with competition authorities.
According to the SEBI, businesses can only raise funds by issuing securities, but OIP overrides these requirements. It’s become a popular technique of private placement since the firm doesn’t have to compromise its management interest and doesn’t have to go through the same tedious procedures as it did throughout its IPO. Therefore, a Qualified Institutional Placement (QIP) is a capital-raising technique in which a publicly listed firm could distribute shareholdings, entirely or partly converted debt instruments, or any other equity-convertible product other than warrants.
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The Securities and Exchange Board of India (SEBI) established the QIP on May 8, 2006, to prevent Indian companies from depending on foreign funding. Before the invention of the qualified institutional placement, Indian market regulators and authorities were concerned that Indian firms were obtaining overseas finance through selling securities in foreign markets, such as American depository receipts (ADRs).
Due to the difficulties of acquiring finance in local markets, many businesses have turned to international markets. This resulted in the depreciation of Forex reserves and the increasingly volatile nature of Indian markets due to fluctuating foreign investment. The QIP standards were developed to encourage Indian corporations to raise capital domestically rather than entering global markets, as this was considered an undesired export of the home equities market.
SEBI has been able to tap the potential of Indian asset management corporations and large investment firms through the introduction of QIP. As QIP provides a non-retail regulatory mechanism for such large investments, it channels the fund directly to the issuer effectively.
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What are the Regulatory Details of the QIP process?
SEBI saw an increasing reliance on American depository receipts (ADRs), Global Depository Receipts (GDRs), or foreign currency convertible bonds in overseas investment markets. This was a worry since it limited the ability of emerging economies to perceive a sophisticated finance route and exacerbated the company’s reliance on foreign organizations to support it. If the corporation relied on one principal supplier, this might have resulted in a shift of power to the foreign entity, as well as a loss of managerial authority of Indian citizens.
The Securities and Exchange Board of India (SEBI) has introduced Chapter XIIIA further into the SEBI Guidelines of 2000 (Disclosure & Investor Protection Act), with effect from May 8 2006. This resulted in creating a regulatory structure for Qualified Institutional Placements, often known as the QIP Investment Scheme.
Public financial companies, collective investment schemes, foreign institutional investors, investment firms, and foreign venture capital firms registered with the SEBI are all eligible to participate in the QIP Scheme. Under terms of this QIP Scheme, any issuance of equity shares, completely convertible debentures, partly convertible debentures, and perhaps other instruments other than incentives that are convertible into or interchangeable with share capital later date is permitted.
These same Securities might well be issued by the issuing company at a price that is no less than the maximum of the mean of the weekly high and low of the price movement of the associated shares referenced on the stock exchange for the previous six months or the two preceding weeks determined by market valuation, as calculated by the QIP Framework.
The Securities would only be issued based on a placement instrument, and a merchant banking firm must be chosen for this purpose. The issuance by a merchant banker is responsible for several responsibilities mentioned under the QIP Scheme.
When the total issue value is less than or equal to Rs 250 crore, the required amount of QIP allottees is two; whenever the total issue value is larger than Rs 250 crore, the required number of QIP allottees is five. Meanwhile, no one allottee shall receive more than half of the entire issue size.
The total of the planned QIP investment and any prior placements done by the company in the same financial year should not exceed five times the issuer’s total wealth per the past fiscal year’s certified income statement.
The Securities granted under the QIP Program may not be transferred by the allottees for one year to the date of allocation unless on a registered stock market.
This clause also allows allottees to quit the capital market without waiting a minimum of one year, which may have been the lock-in period if they had purchased the securities through a preferential allocation.
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Who Can Utilize the QIP Scheme?
Because QIP is a particular approach for simplifying the domestic fundraising procedure for listed firms, retail investors are not permitted to participate. Only SEBI authorized investors, known as Qualified Institutional Buyers (QIBs), can purchase QIPs.
Only a small number of investors who follow SEBI’s rules and regulations are allowed to partake in the QIP procedure. International venture capital venture capitalists, state-owned industrial development corporate entities, Insurance Providers authorized by the Insurance Regulatory and Development Authority (IRDA), SEBI authorized Mutual Fund Corporations, Pension fund Funds, and Provident Funds with a minimum of Rs. 25 crores of corpus amount are all regarded QIBs and are qualified to enroll in the primary issuance process.
There is no pre-issue submission of the placement documentation with SEBI. Such papers must be posted on the platforms of the stock exchanges and the issuing company, along with a statement that the arrangement is solely for QIBs on a private placement premise and is not for the general public.
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What are the Benefits of QIP?
The Qualified Institutional Placement (QIP) is a safe and efficient mechanism for publicly traded firms or QIBs to obtain money, reducing their dependency on foreign supply to meet their financing requirements.
They reduce issue time as QIP offering and fund accessibility are considerably faster than other capital-raising methods. This is because QIPs are subject to fewer legal requirements and restrictions, rendering them less time-consuming.
When compared to the procedure of listing overseas, QIPs are much less expensive in terms of legal expenses and generating funds. Companies were willing to pay this premium because of funding problems, which the QIPs effectively resolved.
Regulatory organizations dictate the rate at which the QIP can be sold so that neither the QIBs nor the corporation takes on too much risk. The already listed share value is used to calculate the issue price for a six-month timeframe, after which the discount is averaged out.
FPOs are a subsequent IPO strategy in which a publicly-traded firm may raise funds twice. The legal process, as well as the duration required to form the FPO, is time-consuming. Because of the minimal rules in placements, QIPs have been used as a bridge to obtain capital faster than an FPO. As a result, setting up a QIP and having a QIBs subscription requires far less time than FPOs or other forms of stock offering on the Indian stock market.
QIP is an innovative method developed by SEBI to reduce foreign dependence and improve domestic capital funding in the Indian equity market. It benefits both the issuer and buyer of such capital investments and helps complete such transactions with speed and efficiency. I hope now you understand “What is QIP in Share Market?”.
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