If you are new to the stock market, you have probably heard the term IPO or Initial Public Offering. It is one of the most exciting and talked about activities in the stock market, often in the news and attracting the attention of beginner investors to large institutional investors.
But what exactly is an IPO? How does it work, and why should you care? In this guide, we will share every important information related to IPO – its process, benefits, risks, and how to invest.
What is IPO?
IPO (Initial Public Offering) is the process under which a private company sells its shares to the general public for the first time and gets publicly listed. In simple words, through IPO, a private company becomes public and common investors can buy its shares.
Example: When Zomato launched an IPO in 2021, for the first time, common people could buy its shares on stock exchanges like NSE and BSE.
Why do companies launch an IPO?
Companies get many benefits by launching an IPO:
Raising capital: For expansion, research, technology, or repaying debt.
Brand value and credibility: Becoming a listed company increases investor confidence.
Giving an exit to early investors: Venture capitalists and founders can sell shares.
Using shares as currency: For acquisitions and partnerships.
How does the IPO process work?
1. Appointing an investment banker
The company appoints a few leading investment banks or underwriters, who plan the IPO and help decide the price.
2. Filing DRHP
The company files DRHP (Draft Red Herring Prospectus) with SEBI (Securities and Exchange Board of India) which contains company information, financial reports, risk and plan of use.
3. Getting approval from SEBI
SEBI reviews the document and gives approval as per the rules.
4. Fixing the price band
The price band (minimum and maximum price) of the IPO is decided.
5. Bidding
The IPO remains open for 3–5 days, in which investors apply.
6. Allotment and listing
After the bidding is closed, the shares are distributed and then the company gets listed on the stock exchange.
Who invests in IPO?
Retail investors – Application up to ₹2 lakh
QIB (Qualified Institutional Buyers) – Mutual funds, banks, insurance companies
HNI (High Net-worth Individuals) – Investments more than ₹2 lakh
Anchor Investors – Institutional investors who get shares a day before the IPO
How to invest in IPO?
Step 1: Open a Demat and trading account
It is necessary to open a Demat and trading account on platforms like Zerodha, Upstox, Groww.
Step 2: Check IPO information
Get information about upcoming IPOs on NSE, BSE or brokerage apps and read DRHP.
Step 3: Apply via UPI or ASBA
UPI: Easy application through app
ASBA: Apply through net banking, money remains blocked
Step 4: Check IPO Allotment
Check with PAN number on Link Intime or KFin Tech website.
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Benefits of investing in IPO
There is an opportunity to invest in fast-growing companies at the beginning.
Listing gain
Investing in IPO can give profit on the first day itself.
Portfolio diversification
There is an opportunity to invest in new sectors and companies.
SEBI monitoring
The IPO process is fully regulated and safe.
Risks in IPO
Doubtful valuation: Many times IPOs are expensive.
Lack of history: There is a lack of old data of the company.
Sharp volatility: The price may fall on the day of listing.
Oversubscription: Allotment may be difficult.
Case Study: Paytm IPO (2021)
Paytm launched its IPO at ₹2,150 per share but it fell 27% on the day of listing.
Issue Price: ₹2,150
Listing Price: ₹1,950
Learning: Just having a big brand name does not guarantee profits in an IPO.
2024 Statistics (According to SEBI)
Total IPOs Listed: 66 Companies
Total Capital Raised: More than ₹75,000 Crores
Average Oversubscription (Retail): 6.8 times
Top Sectors: Technology, FMCG, Healthcare
What to Expect in 2025?
The IPO market in India may get even more interesting in 2025, as many big companies like Reliance Jio, Swiggy, Mobikwik, and OYO are preparing to launch their IPOs. With the growing trend of digital investing and the participation of retail investors, this year can prove to be important for IPOs.
Conclusion
IPO is an opportunity in which you can be a part of a company’s growth story right from the beginning. But remember – not every IPO is profitable. Read the DRHP, understand the financial position of the company, and invest with a long-term perspective.
If you take steps wisely, IPO investing can add good returns to your portfolio.