Understanding IPOs in India: A Complete Guide for Retail Investors

What is an IPO?

An Initial Public Offering (IPO) is when a private company offers its shares to the public for the first time. In India, companies list on stock exchanges like NSE or BSE, allowing retail investors to buy shares directly from the company.

Why companies go public

Companies launch IPOs for several reasons:

• Raise capital for expansion, debt repayment, or new projects
• Provide exit for early investors and founders
• Increase visibility and brand recognition
• Create liquidity for existing shareholders

The IPO process in India

1. Draft Red Herring Prospectus (DRHP)

The company files a DRHP with SEBI, containing:

• Business model and financials
• Risk factors
• Use of IPO proceeds
• Company background

2. SEBI approval

SEBI reviews the DRHP and approves the IPO if all requirements are met.

3. Price band announcement

The company announces a price range (e.g., ₹200-210 per share).

4. Application period

Retail investors can apply through:

• ASBA (Applications Supported by Blocked Amount) via banks
• Online through broker platforms (Zerodha, Groww, etc.)
• Offline through bank branches

5. Allotment

Shares are allotted based on:

• Retail quota: 35% reserved for retail investors (applications up to ₹2 lakh)
• HNI quota: For larger applications
• Institutional quota: For QIBs (Qualified Institutional Buyers)

6. Listing

Shares are listed on stock exchanges, usually within 6-7 days of IPO closure.

How to apply for an IPO

1. Open a demat account if you don't have one
2. Check IPO details on NSE/BSE websites or broker platforms
3. Apply online through your broker or bank's ASBA facility
4. Block funds (not debited until allotment)
5. Wait for allotment results
6. Receive shares in your demat account or refund if not allotted

Should you invest in IPOs?

Pros

• Potential listing gains if the IPO is oversubscribed and lists at a premium
• Early access to promising companies
• Transparent pricing through the book-building process

Cons

• High volatility in the first few days/weeks
• Limited historical data to analyze
• Oversubscription risk - you may not get full allotment
• Listing day speculation can lead to irrational pricing

Key factors to evaluate

Before applying for an IPO, consider:

1. Company fundamentals: Revenue growth, profitability, debt levels
2. Industry outlook: Growth potential and competitive landscape
3. Valuation: Compare P/E ratio with industry peers
4. Use of proceeds: How will the company use the raised capital?
5. Promoter background: Track record and reputation
6. Grey market premium: Informal indicator of market sentiment (not official)

Common mistakes to avoid

• FOMO investing: Applying just because everyone else is
• Ignoring fundamentals: Focusing only on listing gains
• Over-leveraging: Borrowing money to apply for IPOs
• Not reading DRHP: Missing important risk factors
• Selling immediately: Missing long-term value if the company is fundamentally strong

Long-term perspective

While listing gains can be attractive, evaluate IPOs as long-term investments. A good company at a reasonable valuation can deliver strong returns over 5-10 years, regardless of short-term listing performance.

Remember: Not every IPO will list at a premium. Some may list at a discount or trade flat. Focus on the company's business model, growth prospects, and valuation rather than short-term price movements.