Every publicly listed company was once private. The moment it first offered its shares to the general public, it went through an IPO — Initial Public Offering. IPOs generate enormous excitement in India, with millions of retail investors applying for popular ones like Zomato, LIC, and Paytm.
But IPO investing is not as straightforward as it seems. Some IPOs deliver spectacular listing gains. Others list below the issue price and destroy wealth. Understanding how IPOs work — and how to evaluate them — is crucial before you apply.
This guide covers everything: what an IPO is, the full process from SEBI approval to listing, how to apply, and how to critically evaluate whether an IPO deserves your money.
What Is an IPO?
An Initial Public Offering (IPO) is the process by which a privately held company offers its shares to the public for the very first time and gets listed on a stock exchange (NSE and/or BSE in India). After the IPO, the company's shares can be freely bought and sold by anyone with a Demat and trading account.
Why Do Companies Go Public?
Companies have several motivations for launching an IPO:
Raise fresh capital: The company issues new shares and receives the proceeds to fund growth, repay debt, or expand operations
Allow early investors to exit: Promoters, venture capitalists, and private equity firms can sell their existing stakes to public investors (this is called an Offer for Sale or OFS — no new money comes to the company)
Improve brand credibility: Being a public listed company enhances a company's reputation and makes it easier to attract talent and partners
Enable acquisitions: Listed companies can use their shares as currency in mergers and acquisitions
Provide liquidity to employees: ESOP (Employee Stock Ownership Plan) holders can liquidate their holdings after listing
Primary Market vs Secondary Market
The IPO happens in the primary market — where new shares are first sold (you buy directly from the company or selling shareholders). Once listed, all subsequent buying and selling happens in the secondary market — the regular stock exchange. The company receives money only from the primary market (fresh issue portion); secondary market trading does not benefit the company directly.
The IPO Process — From Private to Listed
Going public is a lengthy, regulated process in India. Here is how it unfolds:
Appointment of investment banks (Book Running Lead Managers — BRLMs): The company appoints investment banks (like Kotak Mahindra Capital, JM Financial, Axis Capital) to manage the IPO process.
Due diligence and DRHP filing: The company and BRLMs prepare the Draft Red Herring Prospectus (DRHP) — a detailed document covering the company's financials, business model, risks, and use of proceeds. This is filed with SEBI.
SEBI review: SEBI reviews the DRHP and may raise queries. The company responds and addresses concerns. This process can take 30–75 days.
Price band announcement: Once SEBI approves, the company announces a price band (e.g., ₹850–₹900 per share) — the range within which investors can bid.
IPO subscription opens (3 days): The IPO is open for applications for 3 working days. Investors apply specifying the lot size and price (up to the upper end of the band).
Allotment: The registrar processes applications, determines oversubscription, and runs a computerised lottery for retail applicants (if oversubscribed).
Refund / unblocking: Those not allotted have their blocked funds released within 1–2 business days.
Listing: The stock lists on NSE and BSE, typically 6 business days after the IPO closes. Trading begins from 10 AM.
IPO Categories — RII, NII, and QIB
SEBI mandates that IPO shares be distributed across three categories of investors:
Retail Individual Investors (RII): Indian individuals applying for less than ₹2 lakh worth of shares. At least 35% of the IPO is reserved for this category. In oversubscribed IPOs, allotment is by computerised lottery — each applicant gets at most one lot regardless of how many lots they apply for. Applying from multiple accounts (family members) is a common strategy to improve allotment chances.
Non-Institutional Investors (NII / HNI): Individuals or entities applying for more than ₹2 lakh. At least 15% is reserved for NII. If oversubscribed, allotment is proportional — more applications = more allotment. NIIs often borrow to apply for large amounts in hot IPOs.
Qualified Institutional Buyers (QIB): Mutual funds, insurance companies, FIIs, banks. At least 50% is reserved for QIBs. High QIB subscription is generally a positive signal (institutional confidence). QIBs cannot withdraw their bids after bidding closes.
Price Band, Lot Size, and Oversubscription
Every IPO comes with a lot size — the minimum number of shares you must apply for. For a ₹900 IPO with a lot size of 16 shares, the minimum application value is ₹14,400. The lot size is designed such that the minimum retail application falls between ₹13,000 and ₹15,000 approximately.
Oversubscription measures how many times the available shares were applied for. If an IPO is subscribed 100x in the retail category, statistically only 1 in 100 retail applicants will get allotment (one lot). Some popular IPOs (like Tata Technologies in 2023) were subscribed 69x overall with retail subscriptions exceeding 40x.
Grey Market Premium (GMP) — Handle with Extreme Caution
The Grey Market is an unofficial, unregulated market where IPO shares are traded before they are officially listed. The GMP (Grey Market Premium) is the premium at which these shares are being traded above the issue price.
For example, if an IPO issue price is ₹900 and the GMP is ₹200, shares are changing hands at ₹1,100 in the grey market — implying a listing expectation of around ₹1,100.
Warning: GMP is unreliable and often manipulated
GMP is not regulated by SEBI, is based on thin volumes, and is frequently manipulated by operators to create FOMO (Fear of Missing Out) and drive more applications. The same IPO can show wildly different GMP on different platforms. Never base your investment decision on GMP. Paytm had a positive GMP before listing and still fell 27% on listing day. Always evaluate fundamentals, not GMP.
How to Apply for an IPO — Step by Step
Applying via UPI / ASBA (Most Common Method)
1
Check IPO details — Look up the IPO on your broker's app (Zerodha, Groww, Upstox) or NSE/BSE websites. Note the price band, lot size, open/close dates, and minimum application amount.
2
Open the IPO application — In your broker's app, go to the IPO section and select the IPO you want to apply for.
3
Enter bid details — Choose the number of lots (minimum 1), enter your bid price (usually the upper end of the price band for retail investors — this maximises allotment chance), and enter your UPI ID.
4
Submit application — Submit the application. You will receive a mandate request on your UPI app (Google Pay, PhonePe, BHIM, etc.).
5
Approve UPI mandate — Open your UPI app and approve the payment mandate. This blocks (not debits) the application amount in your bank account. You continue to earn interest on blocked funds.
6
Wait for allotment — After the IPO closes, the registrar processes applications. Check allotment status on the registrar's website (LINK Intime, KFintech) or BSE website using your PAN or application number, typically 5–6 days after IPO closes.
7
Listing day — If allotted, shares are credited to your Demat account before market opens on listing day. You can hold or sell at your discretion.
India's largest IPO; entirely OFS; no fresh capital raised
Past listing performance does not predict future price movements. All data is approximate and for educational purposes only.
How to Evaluate an IPO Before Investing
Most retail investors apply for IPOs based on hype, GMP, or brand name. Here is what you should actually analyse:
1. Read the DRHP (Draft Red Herring Prospectus)
SEBI mandates full disclosure in the DRHP, filed publicly on SEBI's website and the registrar's site. Pay special attention to the "Risk Factors" section — companies are legally required to list everything that could go wrong. Also check the "Use of Proceeds" section — is the money being used to grow the business or just to let promoters exit?
2. Check Valuation
Look at the P/E ratio at the issue price versus listed peers. If Zomato's IPO P/E was 200x while Swiggy wasn't listed, you need to assess whether that premium is justified by growth expectations. An IPO priced at a massive premium to peers is a red flag.
3. Promoter Selling (OFS Proportion)
If the IPO is entirely or mostly OFS (promoters selling their shares), the company gets no money. The promoters are simply cashing out. This is not inherently bad, but it should make you ask: if promoters believe in the company's future, why are they selling now?
4. Business Quality and Profitability
Is the company profitable? If not, does it have a clear path to profitability? Loss-making companies are not automatically bad investments (Amazon and Zomato were loss-making for years), but the losses should be driven by growth investment, not structural unit economics problems.
5. Subscription Levels (Institutional Interest)
High QIB subscription (institutional category) is generally a positive signal — sophisticated institutions have done deep due diligence. However, even institutions make mistakes (several QIBs subscribed to Paytm's IPO).
6. Post-Listing Lock-Up
Promoters and pre-IPO investors typically have a lock-up period of 6 months to 1 year after listing during which they cannot sell shares. When the lock-up expires, a large supply of shares can enter the market and push prices down. Factor this into your holding timeline.
Warning: FOMO is the biggest IPO mistake
"This IPO is subscribed 100x — it must be good!" is one of the most dangerous thoughts in investing. High oversubscription reflects demand at the IPO stage but says nothing about whether the company is worth owning long-term. Some of India's worst-performing stocks were heavily oversubscribed IPOs. Evaluate every IPO as you would any stock — with cold, rational analysis, not excitement.
Master Stock Market Investing — Start with the Complete Guide
From IPOs to reading balance sheets to building a portfolio, our complete stock market guide has everything you need to invest with confidence.
No. Many IPOs list below their issue price or fall significantly within the first few months of trading. Historical data shows a significant percentage of Indian IPOs underperform the broader market over 1–3 years post-listing. The listing gain (if any) is driven by sentiment, oversubscription, and market conditions — not necessarily by business quality. Always evaluate an IPO as you would any stock investment rather than treating it as a guaranteed profit.
ASBA stands for Application Supported by Blocked Amount. Under ASBA, your IPO application money is blocked (not debited) in your bank account until allotment. If you receive no allotment, the block is released automatically within 1–2 business days. If partially allotted, only the allotted amount is debited. This protects investors because you continue to earn interest on the blocked funds (unlike older systems where money was fully debited upfront). ASBA is mandatory for all retail IPO applications in India.
No, GMP is highly unreliable. It operates in an unregulated informal market with thin trading volumes and is frequently manipulated by operators to create FOMO and drive more IPO applications. The same IPO often shows dramatically different GMP figures across different GMP tracking websites. Paytm had a positive GMP before listing yet fell 27% on its listing day. Use GMP only as a rough sentiment indicator — never as the primary basis for an investment decision.
Yes. If you receive allotment, the shares are credited to your Demat account before trading begins on listing day. You can sell them at any point during listing day's trading hours, including right at the open if the listing price is attractive. Many investors choose to book profits immediately on listing day if the price is significantly above the issue price — this is called "listing gain selling." There is no mandatory holding period.
If you are not allotted shares (very common in oversubscribed IPOs), the blocked amount in your bank account is unblocked automatically within 1–2 business days after allotment finalisation. No penalties or charges apply. If you still want to invest in the company after it lists, you can buy shares at the market price on the stock exchange starting from listing day — though the price may be higher or lower than the issue price.
An IPO (Initial Public Offering) is when a company offers shares to the general public for the very first time and gets listed on stock exchanges. An FPO (Follow-on Public Offer) is when an already-listed company issues additional new shares to the public to raise more capital — this happens after the company is already trading. An OFS (Offer for Sale) is when existing shareholders sell their shares without the company raising fresh capital. A rights issue is different from all three — it is an offer only to existing shareholders.
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