How Does an IPO Work? Step-by-Step IPO Process in India Explained
For many investors, an IPO is the first step into the stock market. When a company goes public and sells its shares to the public for the first time, allowing retail investors, institutions and high-net-worth individuals to participate in its growth. Understanding IPO application Process, how IPO works helps investors apply confidently and increases the chances of IPO allotment.
What is an IPO?
IPO or Initial Public Offering, happens when a private/ public unlisted company sells its shares to the public for the first time on a stock exchange. This is called going public, as ownership moves from private hands like founders, family members or angel investors to the public.
Through an IPO, a company can raise money to expand its business, launch new projects or repay loans. It also allows early investors to sell some of their shares and earn profits.
IPO doesn’t happen instantly. Usually, a company works with investment banks to prepare financial documents, get approvals from regulators like SEBI, create a prospectus for investors and promote the IPO to generate interest.
IPO Process in India – Step by Step Process
Here’s a step-by-step look at the IPO application process in India
Step 1: Appointment of Lead Managers
The first step is to appoint lead managers, also called Book Running Lead Managers (BRLMs), usually merchant bankers or investment banks. They guide the company through the IPO by studying its financials, suggesting the price band, handling regulatory filings with SEBI and exchanges, promoting the IPO to investors and underwriting unsold shares. For large IPOs, multiple lead managers may be appointed.
Step 2: Filing Draft Red Herring Prospectus (DRHP)
Next, the company files a DRHP with SEBI. This document contains details like the company’s background, promoters, business model, financial statements, risks and use of funds.
Step 3: SEBI Review and Approval
SEBI reviews the DRHP to ensure all risks and facts are fairly disclosed. After SEBI provides an observation letter, the company makes the required clarifications and amendments. Then the company files an updated and finalized Red Herring Prospectus (RHP) with the Registrar of Companies (RoC) and stock exchanges before launching the IPO.Step 4: Stock Exchange Approval
Along with SEBI, the company also applies to NSE/BSE for listing approval. Exchanges check compliance and financials before granting in-principle approval.Step 5: IPO Roadshows and Marketing
Before an IPO opens, the company usually spends about two weeks marketing it to investors, especially large institutions (QIBs) in major financial cities. During this phase, executives present key facts and financials to generate interest. Sometimes, big investors are also given a chance to buy shares at fixed price before the IPO officially goes public.
Step 6: Setting the Price Band
Once SEBI approves, the company and underwriters decide whether the IPO will be a:
- Fixed Price Issue: Shares offered at a pre-decided price.
- Book Building Issue: A price band is set (e.g., ₹95–₹100) and investors bid within it. Final issue price is decided based on demand.
Step 7: IPO Opens for Subscription
IPO process begins with anchor investors (large institutions) placing their bids one working day before the public. After this, the IPO is opened to retail and other investors, with the bidding window typically lasting three working days. Investors then apply for shares within the specified price band through their brokers or banks.
Get IPO-ready with MNCL
Open your Demat account and invest from Day 1.
Step 8: Share Allotment and Refunds
After the bidding ends, the company finalizes share allotment. In oversubscribed IPOs, shares are allotted via lottery, while in undersubscribed cases, applicants usually get full allotment. Refunds are processed for those who don’t get shares and allotted shares are credited to Demat accounts within 10 working days.
Step 9: Listing Day
The company’s shares are then listed on NSE and/or BSE. The listing price depends on demand, high demand may lead to a premium listing, while low demand can result in a par or discounted listing.
Step 10 : Post-IPO reporting
After an IPO, the company must regularly share financial updates and annual reports with shareholders, stock exchanges and regulators. This ensures transparency and helps everyone track company’s performance.
Conclusion
Participating in an IPO can be an exciting way to invest in a company’s growth from the very beginning. Understanding the IPO application process helps investors apply confidently, while knowing how IPO allotment works prepares them for the chances of receiving shares. Though IPOs carry risks, careful research, timely applications and awareness of allotment patterns can increase your chances of success.
FAQs
- Is IPO good for beginners?
Yes, IPOs can be a good starting point for beginners, but understanding the company, its financials and market conditions is essential before applying.
- Can I sell the IPO shares immediately?
Yes, once shares are allotted and credited to your Demat account, then you can sell them on the stock exchange after listing.
- Are all IPOs guaranteed to be profitable investments?
No, IPOs are not guaranteed to be profitable. Returns depend on company fundamentals, market demand and post-listing performance.
