What is an IPO?
An IPO is the first time a private company sells its shares to the public. Here is what actually happens, step by step, in the Indian market.
An Initial Public Offering (IPO) is the process by which a privately held company offers its shares to public investors for the first time and gets listed on a stock exchange such as the NSE or BSE. The company raises money either by issuing brand-new shares (a fresh issue, where the cash goes to the company) or by letting existing shareholders sell part of their stake (an offer for sale, where the cash goes to those shareholders). Most Indian IPOs are a mix of both.
Why companies go public
- To raise growth capital without taking on debt.
- To give early investors and employees a way to sell their holdings.
- To repay borrowings and strengthen the balance sheet.
- To gain a public valuation, which helps in future fundraising and acquisitions.
The documents that matter
Before an IPO opens, the company files a Draft Red Herring Prospectus (DRHP) with SEBI. After SEBI observations, it files the Red Herring Prospectus (RHP), which carries the price band, issue dates and the objects of the issue. The RHP is the single most useful document for a retail investor: the risk factors, litigation, promoter background, related-party transactions and financials are all there. Read at least the risk factors and the "Objects of the Issue" section before applying.
Book building and the price band
Almost all mainboard IPOs in India use book building. Instead of a single fixed price, the company publishes a narrow price band — say ₹95 to ₹100 — and investors bid within it. Once bidding closes, the cut-off price at which the issue is fully subscribed becomes the final issue price. Retail investors normally tick the "cut-off" box, which means they accept whatever the final price turns out to be; that maximises the chance of a valid bid. A smaller number of issues, mostly SME ones, are fixed price offers where the price is stated upfront.
Lot size and minimum investment
You cannot buy a single share in an IPO. Shares are sold in lots, and the exchange sets the lot size so that one retail lot costs roughly ₹14,000–₹15,000 for mainboard issues. SME lots are far larger, often ₹1 lakh or more, because SEBI wants only investors who can absorb the higher risk. A retail individual investor can apply for up to ₹2 lakh in total across lots; beyond that, the application moves into the HNI (non-institutional) category.
The three investor categories
- QIB — qualified institutional buyers such as mutual funds, insurers and foreign portfolio investors. Their subscription level is watched closely as a quality signal.
- NII / HNI — non-institutional investors applying above ₹2 lakh, split into small (₹2–10 lakh) and big (above ₹10 lakh) buckets.
- RII — retail individual investors applying up to ₹2 lakh. At least 35% of a book-built issue is reserved for this category when the company has a profit track record.
From application to listing
- Apply through your broker or net banking. Money is not debited — it is blocked in your bank account through a UPI mandate or ASBA instruction.
- Bidding closes, usually after three working days.
- Basis of allotment is finalised by the registrar, typically one to two working days later.
- Refunds and credits: unblocked funds are released and allotted shares are credited to your demat account.
- Listing happens on T+3 — three working days after the issue closes — with a pre-open session that discovers the opening price.
What a listing gain is — and is not
The difference between the issue price and the listing price is the listing gain. It is driven by demand on listing day, not by any promise from the company. Grey market premium is often quoted as a predictor, but it is an unofficial and unregulated number. Plenty of heavily subscribed IPOs have listed flat or below issue price.