Basic Terms6 min read

What is IPO? How to Apply for IPO in India

An IPO, or Initial Public Offering, is the process through which a private company offers its shares to the public for the first time and gets listed on a stock exchange. It is the moment a company transitions from being privately owned to having public shareholders.

When Zomato launched its IPO in July 2021, it was the first time ordinary investors could buy shares in the food delivery company. Before the IPO, only early investors, venture capital firms, and employees with ESOPs owned Zomato shares. The IPO opened that ownership to anyone with a demat account and the money to apply.

Why do companies do an IPO?

The primary reason is to raise money. A company can use IPO proceeds to fund expansion, pay off debt, build new facilities, or simply create liquidity for existing investors who want to exit. Listing on an exchange also raises the company's profile, makes employee stock options more valuable, and provides a real-time market valuation.

Not all IPOs are fresh fundraises. Some IPOs are entirely an Offer for Sale (OFS), where existing shareholders sell their shares to the public without the company receiving any money. In such cases, the IPO is a liquidity event for promoters and early investors, not a fundraise for the company.

How does the IPO process work?

DRHP Filing. The company files a Draft Red Herring Prospectus with SEBI, disclosing its business, financials, and risks in detail.
SEBI Review. SEBI reviews the filing and issues observations. The company incorporates changes and files the final prospectus.
Price Band. The company sets a price band, for example Rs.72 to Rs.76 per share, within which investors can bid.
IPO Window. The issue opens for 3 to 5 days during which investors apply through their broker or bank's ASBA facility.
Allotment. If the issue is oversubscribed, shares are allotted through a lottery for retail investors. Oversubscribed means more applications came in than shares available.
Listing. Shares are listed on NSE or BSE approximately 6 trading days after the IPO closes. Trading begins at the listing price, which can be above or below the issue price.

How do I apply for an IPO in India?

You need a demat account and a bank account linked to it. Most applications are made through the ASBA facility, where your bank blocks the application amount in your account until allotment. If you get allotment, the blocked amount is debited. If not, it is released.

You can apply for IPOs directly through Stockk at stockk.trade/products/ipo.

Investments in securities market are subject to market risks. IPO allotment is not guaranteed. Read the Red Herring Prospectus carefully before applying. This article is for educational purposes only.

Frequently Asked Questions

I applied for an IPO but did not get allotment. Why does this happen?

When an IPO is heavily oversubscribed, the total number of applications exceeds the shares available. SEBI mandates a lottery-based allotment for retail investors in such cases, where allotment is random and not based on bid price or application size within the lot. A highly anticipated IPO can receive applications 100 times or more than available shares, making allotment genuinely uncertain for any individual applicant.

Should I always sell IPO shares on listing day?

This depends on why you applied and what the listing price is. Some investors apply purely for listing gains, selling on day one if the price is above the issue price. Others invest in IPOs as long-term holdings if they believe in the company's fundamentals. Neither approach is universally right. There are no guarantees of listing gains.

What is the minimum amount needed to apply for an IPO?

SEBI requires IPO applications to be in multiples of one lot, where the minimum lot value is approximately Rs.14,000 to Rs.15,000. The exact lot size varies by IPO. The price band and lot size together determine the minimum application amount. For most retail category IPOs, you apply for at least one lot and can apply for up to a maximum of 14 lots.

Is it safe to apply for an IPO through a third party app that promises guaranteed allotment?

No. There is no legal way to guarantee IPO allotment. SEBI's allotment process for retail investors is lottery-based when oversubscribed, and no one can influence this process legitimately. Always apply through SEBI-registered brokers or your bank's official ASBA channel.

What is grey market premium in IPOs and should I take it seriously?

The IPO grey market is an unofficial market where IPO shares are bought and sold before listing. The grey market premium, or GMP, reflects how much above the issue price buyers in this unofficial market are willing to pay. It is not regulated and carries no guarantee of accuracy. Do not base your IPO application decision solely on GMP.

Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice.