Follow-on Public Offer (FPO)
A share issuance by an already-listed company that raises fresh capital from the public, often at a discount to the market price.
Definition
A Follow-on Public Offer (FPO) is a mechanism through which a company already listed on NSE or BSE issues additional shares to the general public to raise fresh equity capital. Unlike an IPO, where a company enters the public markets for the first time, an FPO occurs after the company already has an established market price and trading history. FPOs can be dilutive — where new shares are created and the total share count rises — or non-dilutive (an Offer for Sale), where existing shareholders such as promoters sell their holdings to the public without increasing the company's share capital. SEBI regulates FPOs under the ICDR Regulations and mandates disclosures including a red-herring prospectus and lock-in periods for promoters.
Why it matters
For traders on NSE and BSE, an FPO announcement is a significant corporate action that can meaningfully move the stock price. Dilutive FPOs increase the total number of shares outstanding, which reduces earnings per share (EPS) and book value per share — a headwind for the stock price. The FPO issue price is typically set at a 5–15% discount to the prevailing market price to incentivise participation, which creates immediate downward pressure on the market price as it adjusts toward the issue price. For F&O traders, an FPO subscription period can trigger unusual spikes in put open interest as holders hedge dilution risk. If the company is in the F&O segment, lot sizes and margin requirements may be revised after the share count changes. Institutional investors (QIBs) often receive a reserved portion, while retail investors get a separate quota with an additional discount in some cases.
How it works
A company's board approves the FPO, appoints merchant bankers, and files a Draft Red Herring Prospectus (DRHP) with SEBI. After SEBI's observations are incorporated, the company fixes a price band and opens a subscription window — typically three trading days — where investors bid via ASBA (Applications Supported by Blocked Amount) through their bank or broker. Allotment follows the same proportional or lottery mechanism as an IPO. Once shares are allotted and listed, they rank pari passu with existing shares, meaning they carry identical voting rights and dividend entitlement. The promoter group faces a lock-in on any shares they retain, discouraging them from immediately selling post-FPO.
Example
Suppose a hypothetical listed company, ABC Infrastructure Ltd, is trading at ₹500 per share and decides to raise ₹2,000 crore through an FPO by issuing 4 crore new shares at ₹490 (a 2% discount to market price). Before the FPO the company had 20 crore shares outstanding; after allotment it has 24 crore shares — a 20% dilution. If the company's annual profit remains ₹400 crore, EPS falls from ₹20 (₹400 crore / 20 crore shares) to ₹16.67 (₹400 crore / 24 crore shares). At the same P/E multiple, the fair price would re-rate lower, explaining why FPO stocks often trade at or below the issue price in the short term. This is a hypothetical illustration; actual market reactions depend on the stated use of proceeds, promoter credibility, and broader market conditions.
Track FPO-driven option activity live
Watch put OI build-up and IV spikes around FPO announcements using TradePulse's real-time option chain.