Guide In The IPO Process

A Step By Step Guide In The IPO Process

Stock markets are abundant with numerous investment opportunities. One of those is initial public offerings (IPOs). An active secondary market doing good fuels the growth of capital formation via IPO. Investors can consider IPO investments to make short-term listing gains or long-term wealth creation, depending on their risk profile and financial objectives.

There are several factors that an investor needs to know about before investing in an IPO. Most of these are covered under the IPO process. Let us look at the IPO process followed by companies that will help you make informed investment decisions.

What is an IPO?

An IPO enables companies to raise fresh capital in the primary market. IPO means issuing and selling securities to the public. IPO means establishing a direct relationship between the company and public market investors. It is an important step for a company that helps in business expansion, business growth and boosts its credibility in the market. Most companies prefer to forgo the IPO route over other alternatives. When there is a large number of upcoming IPOs, it indicates a healthy stock market and economy.

–          Hiring An Underwriter or Investment Bank

Underwriters or investment bankers are intermediaries between the company and its investors. They investigate the crucial financial parameters to prepare its Red Herring Prospectus and make an IPO successful. They need to work as per the signed underwriting agreement with the company that contains the deal details, amount to be raised, types of securities being issued, like fresh equity issue or offer-for-sale, and other information. Investors should consider the quality of management and underwriters while deciding on an IPO investment. Demat account opening online is convenient to invest in IPOs and other financial assets.

–          Registration

A draft prospectus comprises compulsory disclosures as per the Securities Exchange Board of India (SEBI) and the Companies Act in India. Investors can find risk factors of the IPO, industry-specific terms, the use of raised funds, forecasts and predictions about the industry, the company’s core business activities, its management quality and details, financial statements, and legal information also before making investments.

–          Scrutiny by the SEBI

Once the company makes the application to the SEBI and stock exchanges, the SEBI scrutinizes all the details submitted by the IPO company. If all conditions are met by the company, it can nod to issue the IPO.

–          Creating a Buzz

IPO funds are the largest source that helps companies to fund company growth, create fixed assets, repay debts, and achieve many other business goals. Therefore, a company markets its IPO issue. It endeavours to create a buzz to drum up interest for shares and attract more potential investors from across the country. It is also a way to gauge demand and excitement for an IPO. Following marketing tactics, the highlights of the IPO are shared with various business analysts and fund managers. It can be done through group meetings, multimedia presentations, Question and Answer sessions, etc.

–          IPO Pricing

IPO pricing can be determined based on Fixed Price or Book Building method. Fixed Price Offering means the IPO price is announced in advance in the red herring prospectus itself. Book Building Offering involves providing a price band to make a bid for the issue. The minimum price is called the Floor Price. After completing the bidding process, the company determines the cut-off price and decides the final IPO price based on applied bids.

–          Allotment

The IPO allotment process largely depends on investors’ responses to the IPO. If investors show less interest and the IPO will typically be undersubscribed, and the company will allot the same number of shares the investor applied for. If investors are very excited about the IPO and it goes oversubscribed, the company allocates less number of shares to the retail investor following a computerized process.


The process of IPO issues is complex. After successful allotment, the investors holding the IPO shares are the shareholders becoming partial owners of the company. Shareholders can exit the company through the stock exchange using their trading account.


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