An Initial Public Offering (IPO) is a company’s first step into the stock market. It’s the process by which a private company becomes public by offering its shares to the general public for the first time.
Why Do Companies Launch an IPO?
Raise Capital: To fund expansion, research, or pay off debts.
Increase Visibility: Public companies gain more credibility and trust.
Allow Early Investors to Exit: Initial investors or founders can sell part of their holdings.
How Does an IPO Work?
- Hiring an Investment Bank
The company works with an underwriter (usually an investment bank) to plan the IPO and decide share pricing.
- Filing with SEBI (Securities and Exchange Board of India)
The company submits a Draft Red Herring Prospectus (DRHP) with financial details and business plans.
- Price Band and Lot Size
The IPO announces a price band (e.g., ₹95–₹100) and minimum investment lot (e.g., one lot = 15 shares).
- Bidding Period
Investors apply during the open window (usually 3–5 days), selecting a price within the band.
- Allotment
Shares are allotted to successful bidders. If demand exceeds supply (oversubscription), a lottery system may apply.
- Listing on Stock Exchange
After allotment, shares are listed on NSE/BSE, and investors can begin trading them.
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Should You Invest in an IPO?
Pros: Early entry into promising companies, potential for listing gains, portfolio diversification.
Cons: Uncertain performance, short track record, oversubscription risk.
Tip: Always read the company’s prospectus and check fundamentals before applying.
