IPOs explained
An Initial Public Offering is how a private company sells shares to the public for the first time and gets listed on an exchange. The process in India is tightly regulated by SEBI and follows a well-defined sequence.
Why companies do an IPO
Two main reasons: to raise fresh capital for business needs (a "primary issue"), and to let existing shareholders sell some of their holdings (an "offer for sale", or OFS). Most Indian IPOs combine both — part fresh issue, part OFS. The fresh portion brings money into the company; the OFS portion is a cash-out for promoters or early investors.
DRHP and RHP
- DRHP — Draft Red Herring Prospectus. Filed with SEBI for review. Contains business description, financials, risk factors, use of proceeds, promoter details, and how shares will be priced.
- RHP — Red Herring Prospectus. The final version after SEBI's feedback, with the price band added.
Both are public documents available on SEBI, the exchanges, and the company's investor-relations site. The risk factors section is the single most useful read for anyone considering applying.
Book-building & price band
Most Indian IPOs use a book-built issue: the merchant bankers publish a price band (e.g. ₹450–₹475), open the issue for 3–5 working days, and accumulate bids from three investor categories — Qualified Institutional Buyers (QIBs), Non-Institutional Investors (NIIs / HNIs), and Retail (you). After bidding closes, the final issue price is set within the band.
Anchor investors
One business day before the IPO opens to the public, the company invites large institutional investors (mutual funds, insurance companies, foreign funds) to bid as anchor investors. Their participation, disclosed publicly, sets the tone for the rest of the issue.
How retail bidding works (ASBA)
All IPOs in India use ASBA — Applications Supported by Blocked Amount. The application amount is blocked in your bank account (not debited) until allotment. If you get full allotment, the money is debited; if you get partial allotment, only that portion is debited; if you get nothing, the block is released. Maximum retail bid: ₹2,00,000.
Allotment
When demand exceeds supply (an "oversubscribed" issue), retail allotment in India is done by a lottery on minimum lot size — not pro-rata. So bidding for multiple lots from one PAN doesn't help much; you only get one lot or none. Some families bid from multiple PAN/demat combinations to raise the odds, which is allowed within legal limits.
Listing day
Shares list on the exchange roughly six working days after the issue closes. The opening price is set via a special pre-open session. A premium ("listing pop") happens when the market's clearing price exceeds the issue price; a discount happens the other way. Listing-day moves are driven by short-term demand and rarely tell you much about the long-term thesis.
Things worth checking before applying
- What's the use of proceeds? Capacity expansion is generally better than purely buying out an existing shareholder.
- What does the company actually do, and why is it growing (or not)?
- What are the comparable listed peers trading at?
- Read at least the risk factors and the auditor's report.