For any company, launching an Initial Public Offering (IPO) is a major milestone. It’s a way to raise funds from the public, which can help fuel expansion, invest in research and development, or even clear existing debts. Essentially, an IPO allows a private company to sell its shares to the public for the first time and get listed on stock exchanges.
The IPO process in India follows a well-defined and highly regulated structure. Companies are required to go through multiple stages, from early planning and securing approvals from regulatory bodies to setting the share price and finally listing on the stock exchange. Each step plays a critical role in determining the success of the IPO and its impact on investors.
Let’s explore each stage of the IPO procedure in detail below.
Decision to go public
A company does not take the IPO route overnight. Businesses have to review finances, assess market behaviour, set IPO goals, and make initial preparations. Experts like underwriters, lawyers, and auditors are hired to assist with the process. These experts help with valuation, drafting IPO-related documents, marketing, and the execution of the IPO.
Filing the Draft Red Herring Prospectus (DRHP)
The company submits a DRHP to the Securities and Exchange Board of India (SEBI), which contains:
- Company financials (balance sheet, profit/loss, revenue details)
- Business model
- IPO issuance objectives
- Use of IPO proceeds (how the funds will be used)
- Risk factors that may impact business growth
- Percentage of a company’s shares owned by promoters
SEBI inspects the DRHP to check for transparency and asks for clarifications if needed. Once approved, the Red Herring Prospectus (RHP) is prepared with additional details such as the number of shares offered and the face value.
Stock exchange application
After getting SEBI’s approval, the company files an application with the stock exchange, where it plans to float the IPO. These exchanges review the company’s compliance and grant approval for listing.
Marketing the IPO to attract investors
Every company wants its IPO to be a big-ticket event. Hence, in the period before the IPO, companies arrange roadshows to spark investor interest. For this purpose, the company and underwriters use various platforms and strategies, such as:
- Question and Answer (Q&A) sessions
- Celebrity endorsements
- Group meetings with institutional investors, analysts, and fund managers
- Webinars, social media promotions, and digital marketing to reach retail investors
Pricing of IPO
Companies primarily use two pricing methods:
- Fixed price: Shares have a set price.
- Book building: A price range is given and you bid within it. The final price, also known as the cut-off price, is decided by the market demand, bid volume, and the company’s funding targets.
Opening the IPO to investors
The IPO becomes available on launch day for a specific period (usually five working days). You can invest in ongoing or upcoming IPOs via a trading app or online portals offered by various brokers.
Allotment of shares
After bidding ends, your blocked amount will be debited if you get the allotment, otherwise, a refund is given.
IPO listing
Once IPO shares are allotted, the company gets listed on the stock exchange and becomes publicly traded. You can liquidate the shares or hold them for long-term growth.
Summing up
The IPO process in India may seem complex as it is highly regulated to maintain transparency. However, every step is structured to protect investors’ interests and promote fair pricing. As an investor, you must thoroughly research an IPO to maximise returns. A smart way to simplify this process is by using the MO Riise app by Motilal Oswal.
Trusted by more than 40 lakh traders and investors, it offers expert research, financial reports, and growth projections for all types of IPOs, be they ongoing or upcoming. With all critical data in one place, you can compare IPO opportunities quickly. Once you find a promising IPO, invest quickly through the UPI method.
Post your comment
You must be logged in to post a comment.