What is IPO? Complete Beginner Guide in India

An in-depth guide to understanding Initial Public Offerings (IPOs) in the Indian Stock Market.

Table of Contents

What is IPO?

An Initial Public Offering (IPO) is a monumental event in the lifecycle of a private company. It is the process through which a privately held company offers its shares to the public for the first time, effectively becoming a publicly traded entity. By launching an IPO, companies can raise significant capital from retail and institutional investors to fund expansion, reduce debt, or provide an exit for early stakeholders.

For investors in places like India, an IPO represents a golden opportunity to invest in potentially high-growth companies at an early stage. When you invest in an IPO, you are buying a stake in the company directly from the issuer, unlike buying shares from the secondary market (stock exchange) where you buy from other sellers.

To track the latest offerings, always check our Upcoming IPO Calendar.

IPO Meaning

The literal IPO meaning is "Initial Public Offering." Let's break it down:

  • Initial: This is the first time the company is approaching the public.
  • Public: The offer is open to the general public, not just private investors.
  • Offering: The company is offering partial ownership (shares) in exchange for capital.

In the Indian context, SEBI (Securities and Exchange Board of India) regulates the entire IPO process to ensure transparency and protect investor interests. Once the IPO is concluded, the shares are listed on stock exchanges like the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), where they can be traded daily.

Types of IPO (Mainboard / SME)

In India, IPOs are broadly classified into two categories: Mainboard IPOs and SME IPOs.

Mainboard IPO

Mainboard IPOs are launched by large, well-established companies with a solid track record of profitability and revenue. These companies list on the main trading board of NSE and BSE. The minimum investment for retail investors is usually around ₹14,000 to ₹15,000 for one lot.

SME IPO

SME (Small and Medium Enterprise) IPOs are designed for smaller, high-growth companies. These list on dedicated SME platforms (NSE Emerge or BSE SME). SME IPOs serve as a launchpad for startups and smaller businesses. The minimum investment size is significantly higher, typically over ₹1 Lakh, making them riskier but often more rewarding in terms of listing gains. Check the latest IPO GMP to gauge market sentiment for these volatile issues.

IPO Process in India

The journey of an IPO involves several critical steps:

  1. Hiring Merchant Bankers: The company appoints experts to manage the issue.
  2. Filing DRHP: A Draft Red Herring Prospectus (DRHP) is filed with SEBI containing all financial details.
  3. SEBI Approval: SEBI reviews and approves the document.
  4. RHP Filing: The final Red Herring Prospectus is filed with dates and price band.
  5. Marketing (Roadshow): The company promotes the IPO to potential investors.
  6. Bidding (IPO Open): Investors place their bids during the 3-day open window.
  7. Allotment: Shares are allotted to investors basis the demand.
  8. Listing: Shares debut on the stock market.

Who Can Apply IPO?

Almost anyone can apply for an IPO in India provided they meet basic criteria:

  • Demat Account: You must have an active Demat and Trading account.
  • PAN Card: A Permanent Account Number is mandatory.
  • Bank Account: A valid bank account linked to UPI or supporting ASBA is required.
  • Age: You must be 18 years or older (minors can apply through guardians).

How to Apply IPO

The process to apply is streamlined via UPI. Here is a quick overview:

  1. Log in to your broker app (Zerodha, Groww, Upstox, etc.).
  2. Go to the 'IPO' section.
  3. Select the active IPO you wish to apply for.
  4. Enter the lot size and bid price (usually the cut-off price).
  5. Enter your UPI ID and submit.
  6. Approve the mandate request on your UPI app (GPay, PhonePe, Bhim).

For a detailed step-by-step guide, visit our page on How to Apply IPO.

What is IPO GMP?

GMP stands for Grey Market Premium. It is the unofficial premium that traders are willing to pay for an IPO share before it lists on the exchange.

For example, if an IPO price is ₹100 and its GMP is ₹50, the estimated listing price is ₹150, indicating a 50% listing gain. While not 100% accurate, IPO GMP Today is a powerful metric to judge the subscription demand and potential profit.

IPO Allotment Process

The IPO Allotment is the process of allocating shares to bidders. If the IPO is oversubscribed, allotment happens via a lottery system for retail investors. Investors wait anxiously for the allotment date to see if they got lucky. You can check your IPO Allotment Status online via the registrar's website.

Risks of IPO Investment

While IPOs can be lucrative, they carry risks:

  • Listing Loss: A company can list below its issue price (discount listing).
  • Valuation Risk: The company might be overvalued at the time of IPO.
  • Sector Risk: Industry downturns can affect new stocks severely.
  • SME Volatility: SME IPOs have low liquidity and can be hard to sell.

FAQ

What is full form of IPO?

Full form is Initial Public Offering.

Is IPO money refunded if not allotted?

Yes, the blocked amount is released by the bank typically within 1-2 days after allotment finalization.

Can I sell IPO on listing day?

Yes, you can sell your allotted shares immediately once trading begins on listing day.