How the owners of the company make money in stock markets

You might have heard about IPO — Initial Public Offering, wherein the owners sell a percentage of their company to the public for cash.

example: owners may sell a 15% stake for a total sum of 5000 crores.

Owners will use this 5k crore to build their company and as a result, the price of the shares goes up.

However, a rising share price does not mean the owners will get any money again. So if the owners require more money — what will they do??

They can further sell their shares — called FPO — follow on public offer

Or do something called a “promoter pledge”

The owner can keep his share certificates as collateral in any of the banks and raise money

This is highly dependent on the share value

eg: If the share price is Rs1000 and the bank promises to give you an 80% loan against it — you will get Rs800

The same share if it goes to Rs2000, you can get Rs1600 as a loan

So theoretically if you inflate the share prices, you can take more loans and grow your business with free money.

When the share prices increase, you can close the old loan and take a new loan with the revised share price.