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IPO or Initial Public Offering is a process through which a private company offers its shares to the public for the first time. After the IPO process in India completed, the company becomes a publicly listed entity and its shares are traded on stock exchanges like NSE or BSE.
Going public is a big milestone. It gives a company access to more capital, improves its brand value, and offers liquidity to early investors. But launching an IPO in India involves a well-defined, regulated process set by SEBI (Securities and Exchange Board of India) and the stock exchanges.
If you are trying to understand how companies issue shares to the public, in this blog we’ll breaks down IPO process in India into 9 easy steps.
IPO Process in India – Step by Step Guide
A company must follow the IPO procedures set by the stock exchanges where it plans to list its shares after the IPO. In India, IPO procedure includes the following steps:
The first step involved in ipo process is to appoint a lead manager which is also known as a book running lead manager (BRLM). These are registered merchant bankers, often large investment banks or financial institutions. Their role is to:
- Study the company’s finances and prepare it for the IPO
- Estimate how much money the company can raise
- Suggest the price band for the shares
- Help with legal and regulatory filings
- Coordinate with SEBI and stock exchanges
- Promote the IPO to potential investors
- Underwrite the issue (i.e., take responsibility for unsold shares, if any)
If the IPO is large in size, multiple lead managers can be appointed.
After planning the IPO, the company, through its lead managers prepares and files the Draft Red Herring Prospectus (DRHP) with SEBI.
DRHP is a detailed legal document. It includes:
- Information about the company’s history and promoters
- Business model and industry details
- Audited financial statements
- Legal cases (if any)
- Risks involved for investors
- Use of the IPO proceeds
Why is it called Red Herring?
Because of the red disclaimer on the document stating the IPO isn’t open until SEBI’s approval is received. The company publishes this document for public access so investors can read it before applying for the IPO.
SEBI carefully reviews the company’s disclosures after receiving the DRHP and may request clarifications or additional information.
SEBI’s main goal is to ensure that the company has fairly disclosed all risks and facts. Once satisfied, SEBI gives its final observation letter, which acts as a clearance to go ahead.
DRHP then becomes Red Herring Prospectus (RHP), the final version used for public release before the IPO opens.
In parallel with SEBI’s approval, next steps involved in ipo process is, companies also applies to stock exchanges NSE or BSE for listing.
The exchanges verify the company’s structure, compliance, and financial strength. Once satisfied, the stock exchanges grant company in-principle approval to list its shares.
Both SEBI and stock exchange approvals are necessary before an IPO can launch.
Before an IPO goes public, company executives usually conduct a two-week IPO roadshow across major financial hubs in India. As part of the IPO process in India, they meet potential investors, mainly QIBs, to present company data and build interest. Some large investors may also get the opportunity to purchase shares at a fixed price before listing.
Along with PR and advertising agencies, merchant bankers promote the IPO to the public. These roadshows include meetings with investors, analysts, journalists, and media representatives, making them an essential step in the overall IPO listing process.The company starts marketing the IPO to generate public interest. This is done through:
- Advertisements in newspapers and digital media
- TV and radio commercials
- Investor presentations and events
- One-on-one meetings with institutional investors
During this time, the management explains the company’s vision, financial health, and future growth plans to attract big investors like mutual funds, insurance firms, and foreign institutions.
As part of the IPO process steps in India, the issuer and merchant bankers decide the IPO pricing method, which can be either a fixed-price issue or a book-building issue. In a fixed-price issue, the share price is announced before the IPO.
In a book-building issue, the issuer sets a price band (e.g., ₹95 to ₹100) and both retail and institutional investors place their bids within this range. Once the bidding process is completed, the final issue price is determined based on overall demand.
For example, if the price band is ₹95 to ₹100 per share:
- ₹95 is the floor price
- ₹100 is the cap price
Before the IPO opens to the general public, it is first offered to anchor investors (If any), who are qualified institutional buyers (QIBs) investing a minimum of ₹10 crore under the anchor investor category.
Once the IPO opens for subscription (generally for 3 to 4 working days), investors can apply for shares by selecting a price within the price band, this process is called book building.
The company and its lead managers collect and record all investor bids to determine the level of demand at each price point.
At the end of the subscription window, the company and lead managers analyse the book to decide the final issue price, the price at which shares will be allotted.
After pricing is finalized, the company allots shares to investors.
- If the IPO is oversubscribed (more demand than shares), allotment is done through a lottery system.
- If the IPO is undersubscribed, all applicants may receive full allotment.
- The company processes refunds within a few working days for investors who don’t receive any shares.
The shares allotted are credited directly to the investor’s Demat account. Because SEBI rules require companies to complete IPO allotments within 10 working days of the IPO closing date.
This is the final step of IPO process in India. The company’s shares are officially listed and start trading on the stock exchange.
Listing price depends on how the market reacts to the IPO:
- If there’s high demand, the share may list at a premium to the issue price.
- If investors show average demand, the company may list the shares at par.
- If market sentiment turns negative, the shares may list at a discount.
Trading of IPO shares on the stock exchange happens in two stages:
1. Pre-open Session
On the listing day, a special pre-open session is held from 9:00 a.m. to 9:45 a.m. for price discovery of the newly listed shares. During this time, investors can place, modify, or cancel orders. From 9:45 a.m. to 9:55 a.m, these orders are matched, and the opening price of the IPO is determined.
2. Commencement of Trading
After pre-open session, normal trading begins at 10:00 a.m. From this point, anyone can freely buy or sell IPO shares in the open market.
After IPO listing process, the issuer must submit several documents to the stock exchange, including board meeting invitations, annual reports, shareholding patterns, audit reports, and corporate governance reports.
Final Words
IPO process in India is well-regulated and transparent. It ensures that companies disclose all important details and investors can make informed decisions. Every step from appointing lead managers to listing on stock exchange has its purpose.
Whether you are beginner investor or just curious about how companies go public, understanding IPO process in india can helps you participate confidently in IPOs and build your portfolio wisely.
FAQs on IPO Process in India
What are the steps in the IPO process?
IPO process in India involves several steps, including appointing a merchant banker, SEBI and exchange approvals, deciding the price band, conducting roadshows, bidding, share allotment, IPO listing, and completing post-listing documentation.
Can I apply for an IPO without a Demat account?
No, a Demat account is mandatory to receive and hold IPO shares in India.
How long does an IPO process take?
IPO process in India usually takes 6 to 12 months for mainboard companies and 3 to 4 months for SMEs, depending on approvals, regulatory compliance, and market conditions.
What is the minimum amount needed to apply in an IPO?
Retail investors must apply for at least one lot, usually costing around ₹14,000–₹15,000.
How does an IPO work in India?
An IPO in India works by enabling private companies to go public and sell shares for the first time. Merchant bankers manage the process, which begins with due diligence and ends with the listing of shares.
How long does it take to receive IPO shares after applying?
The company credits shares to investors within 6 to 10 working days after the IPO closes.
Can I sell IPO shares on the listing day?
Yes, once shares are listed, you can sell them anytime during market hours.
Are IPOs always profitable?
No, IPO performance depends on market demand. Some list at a profit, while others may trade below issue price.
Happy investing and thank you for reading!
Disclaimer:
This website content is only for educational purposes, not investment advice. Before making any investment, it’s important to do your own research and be fully informed. Investing in the stock market includes risks, and you should carefully read the Risk Disclosure documents before proceeding. Please remember that past performance doesn’t guarantee future results, and due to market fluctuations, your investment goals may not always be achieved.
