How Does an IPO Work? Step-by-Step IPO Process in India Explained

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.

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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.