IPO Process in India: How an IPO Works, Step by Step

Meera is a second-year B.Com student in Lucknow. Her cousin tells her over dinner that a company's IPO opens on Monday and "everyone is applying". By Tuesday her phone is full of messages with numbers, nicknames and predictions. She wants to understand what is actually happening, not copy what others do. That is the right instinct. The stock market world loves a launch, but an IPO is a rule-bound process with clear stages, and once you know those stages the noise becomes easier to filter. In this guide, we walk through the IPO process in India the way we explain it in NIFM classes: who is involved, what documents matter, how bidding and allotment work, and what to read before anyone bids a rupee.

A note on purpose: this is education. We do not suggest that you apply for any IPO, and we do not comment on any specific issue. Every rupee example below is hypothetical.

What is an IPO and why do companies launch one?

An IPO, or initial public offer, is the first time a company offers its shares to the general public. Before that, the company is owned by its promoters, family members, and perhaps private investors such as venture funds. After the IPO, ordinary investors can own a small slice, and the shares trade every market day on a stock exchange. In India the two national exchanges are NSE and BSE, and public issues are regulated by SEBI under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, usually called the ICDR Regulations (Source: SEBI ICDR Regulations, 2018).

Companies go public for several reasons:

• Raising money: a fresh issue brings new funds for expansion, debt repayment or working capital.
• Letting early investors exit: an offer for sale (OFS) lets existing shareholders sell some of their holding to the public.
• Visibility and discipline: a listed company must publish results every quarter and follow continuing disclosure rules under SEBI's listing regulations (Source: SEBI LODR Regulations, 2015).

Fresh issue, offer for sale, or both?

This distinction matters when you read the offer document. In a fresh issue, the company creates new shares and the money goes to the company. In an offer for sale, existing shareholders sell their shares and the money goes to them, not to the company. Many IPOs combine both. A learner who checks the split learns quickly whether the issue is mainly about growth capital or mainly about an exit.

What are the steps in the IPO process in India?

Behind a three-day bidding window sit several months of work. The stages below are simplified, but they follow the order set by the ICDR Regulations.

DRHP, RHP and prospectus: which is which?

The DRHP (draft red herring prospectus) is the first public draft. It carries business details, risk factors, financial statements, promoters, litigation and the objects of the issue, but not the final price. After SEBI's observations, the company files the RHP (red herring prospectus) with the Registrar of Companies, now with the price band and issue dates. The final prospectus is filed after pricing. When you hear someone say "read the offer document", they usually mean the RHP (Source: SEBI ICDR Regulations, 2018; Companies Act, 2013).

Who does what?

• SEBI examines disclosures and issues observations. It does not endorse the issue or vouch for the company's future performance.
• Merchant bankers manage the issue, due diligence and marketing.
• Registrar to the issue processes applications, finalises allotment and handles refunds.
• Stock exchanges run the bidding platform and list the shares.
• Depositories (NSDL and CDSL) hold the shares in electronic form in your demat account.

An important line from SEBI's own offer documents is worth remembering: SEBI's observations on a draft do not mean it approves or recommends the issue. Every offer document carries a statement to this effect (Source: SEBI ICDR Regulations, 2018, disclosure requirements).

What is the difference between a mainboard IPO and an SME IPO?

Not all IPOs are the same, and learners often mix the two. A mainboard IPO is for larger, established companies. An SME IPO is for small and medium enterprises and lists on a dedicated platform: NSE Emerge or the BSE SME platform. The ICDR Regulations treat them differently in eligibility, minimum application size and process (Source: SEBI ICDR Regulations, 2018, Chapter IX; NSE and BSE SME platform rules).

What rules decide whether a company can come out with an IPO?

SEBI sets entry conditions so that companies with no real track record do not freely raise money from the public. Under the ICDR Regulations, the main eligibility route for a mainboard IPO needs, among other things, net tangible assets and operating profit of specified levels over the preceding years. A company that does not meet the profit-based route can go through an alternative route, in which a larger share of the issue must be allotted to qualified institutional buyers (Source: SEBI ICDR Regulations, 2018, Regulation 6).

Other safeguards you will see in offer documents include:

• Minimum promoter contribution: promoters must generally hold at least 20% of the post-issue capital, and this is locked in for 18 months (Source: SEBI ICDR Regulations, 2018).
• Lock-in of pre-IPO shareholders: shares held by other pre-IPO shareholders are generally locked in for six months from allotment (Source: SEBI ICDR Regulations, 2018).
• Use of proceeds: the offer document must state how the money will be used, and the use is monitored for larger issues by a monitoring agency.
• Disclosure of risks: a dedicated risk factors section is mandatory, and pending litigation must be disclosed.

These rules do not remove risk. They only ensure that you can see the information. How you read it is up to you.

How does bidding work: price band, lots and cut-off price?

Most large IPOs in India use the book building method. Instead of the company fixing one price for all, it announces a price band, for example Rs 180 to Rs 190 per share (a hypothetical illustration). Investors bid within the band, and after the issue closes, the final issue price is decided based on demand. SEBI requires the cap price of the band to be not more than 120% of the floor price (Source: SEBI ICDR Regulations, 2018).

What is a lot?

You cannot bid for a single share; you bid in lots. A lot is a fixed number of shares chosen so that the minimum application value is generally around Rs 15,000 (Source: SEBI circular on minimum application size and lot size in public issues, 2012). Suppose the cap price is Rs 190 and the lot is 78 shares. One lot at the cap price needs 78 x 190 = Rs 14,820. You may bid for more lots, as long as the retail bid stays within Rs 2 lakh (Source: SEBI ICDR Regulations, 2018). The numbers are made up for illustration; the real ones are in each offer document.

Cut-off price bids

A retail investor may bid at the "cut-off price", which means you agree to buy at whatever final price is decided within the band. Funds are blocked at the cap price, and the excess is released if the final price is lower. Only retail individual investors can use the cut-off option (Source: SEBI ICDR Regulations, 2018).

ASBA and UPI: how your money is handled

When you apply, your money does not leave your account. It is blocked, not debited, under the ASBA (Applications Supported by Blocked Amount) facility. For retail investors applying through a broker or an app, the block is done by a UPI mandate that you approve on your UPI app. If shares are allotted, the amount is debited. If not, the block is released (Source: SEBI circulars on UPI-based ASBA for public issues, 2018 to 2022). Approve the mandate promptly; an unapproved UPI request means the bid is not valid.

How are shares divided between investor categories?

In a book-built IPO, shares are reserved for three broad groups. Each group is oversubscribed or undersubscribed on its own, which is why you may hear "the retail portion was subscribed 4 times" and "the institutional portion 60 times" for the same IPO.

• QIBs (qualified institutional buyers) include mutual funds, insurers, banks and foreign portfolio investors. Up to 60% of the QIB portion can be given to anchor investors.
• NIIs (non-institutional investors) are individuals bidding for more than Rs 2 lakh, along with corporates and trusts.
• RIIs (retail individual investors) are individuals bidding up to Rs 2 lakh.

What happens when an IPO is oversubscribed?

Suppose, hypothetically, that 10 lakh applications arrive for a retail portion that can serve only 2 lakh lot-holders. A proportionate allotment would give each applicant less than one lot, which is not allowed. So the registrar runs a computerised lottery among valid applications, and each winner gets one lot. This is why many applicants find no shares in their demat account even though their bid was perfectly valid. It is not a defect; it is arithmetic. Applying with multiple lots does not improve a retail applicant's odds in such a case, because the lottery is by application and not by quantity (Source: SEBI ICDR Regulations, 2018, basis of allotment).

What happens after the issue closes?

Once bidding ends, the registrar validates the bids, removes duplicates and wrong PAN or demat details, and finalises the basis of allotment with the exchange. Shares are credited to the demat accounts of successful applicants, and blocked funds of unsuccessful applicants are released. Since 1 December 2023, SEBI's timeline for listing is T+3, meaning the shares should list within three working days of the issue closing. Earlier it took about six working days (Source: SEBI circular on reduction of time for listing of shares in public issues, 2023).

What is listing day like?

On listing day, the stock does not open at the issue price automatically. For IPOs, a special pre-open session helps decide the opening price based on buy and sell orders, and it can open above, at or below the issue price. After that, normal trading begins. A share that opens higher can fall the same day, and one that opens lower can recover. There is no pattern a learner can rely on, which is why education about risk should come before excitement about listing gains.

What should a learner read in an offer document?

An RHP can run to hundreds of pages. You do not need to read every word to learn from it. A practical order that we teach is this:

1. Objects of the issue. How much is a fresh issue and how much is an OFS? Where will the money go?
2. Business overview. Can you explain, in two sentences, how the company makes money?
3. Risk factors. Customer concentration, dependence on a few suppliers, regulatory exposure and pending cases are usually listed here.
4. Financial statements. Look at revenue, profit and debt across three to five years, and at cash flow, not only profit.
5. Promoters and management. Their background, holdings and related-party transactions.
6. Valuation basis. The document gives ratios such as price to earnings compared with listed peers. Remember that peers are chosen by the company's advisers.

This habit is also a good first project for anyone planning a career in research or markets. The NIFM Certified Smart Investor course page shows the foundation topics we teach for this kind of reading, and our article on how to choose a stock market course explains how to match a course to your goal.

Which IPO myths and risks should beginners know?

Myth 1: "An IPO always lists at a profit"

There is no such rule. Some IPOs list above the issue price and some below, and several that opened strongly fell later. Listing outcomes vary from issue to issue, and past listings do not predict future ones.

Myth 2: "SEBI approval means the company is safe"

SEBI reviews the disclosures; it does not assess whether the price is fair or the business will succeed. Every offer document says so in plain words (Source: SEBI ICDR Regulations, 2018).

Myth 3: "Grey market premium tells you the listing price"

The grey market is informal and unregulated. Its quotes are not published by SEBI or the exchanges, there is no investor protection, and the numbers have often differed from the actual listing price. Treat it as gossip, not as data. It carries no regulatory backing.

Myth 4: "More lots means better allotment chances"

As explained above, when the retail portion is heavily oversubscribed, allotment is by lottery of applications, so more lots do not increase the number of chances. Large bids simply block more of your money for the period.

If you are curious about pooled investing as an alternative route to the market, read our guide to mutual fund basics for beginners in India. It is the same markets, a different structure, and also carries risk.

What is a sensible checklist before applying for any IPO?

The questions below are for self-study. They are not signals to apply or to avoid an issue.

• Do I have an active demat account, a PAN linked to it, and a UPI ID in my own name?
• Have I read the objects of the issue and the risk factors in the RHP?
• Can I explain the business and its revenue model in my own words?
• Am I clear that this money could fall in value, and can I live with that?
• Have I checked whether I am applying in the correct category and within the Rs 2 lakh retail limit?
• Am I applying because I understand the issue, or because others are?

If you would like a faculty member to explain how to read company documents, or you are unsure which course matches your level, you can contact the NIFM team. You can also start from the NIFM home page to see the full list of programmes.

Sources used in this article

• SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended.
• SEBI circular on reduction of the timeline for listing of shares in public issues (T+3), 2023.
• SEBI circulars on UPI-based ASBA in public issues, 2018 to 2022.
• SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
• Companies Act, 2013, provisions on prospectus.
• NSE Emerge and BSE SME platform framework documents.

About this article: written by the NIFM faculty team, who teach stock market and financial market courses. Last updated 22 October 2026. SEBI rules and exchange practices change, so verify the latest position in the official circulars and in the offer document of the issue you are studying.