Step-by-Step Guide to the IPO Process in India

Initial Public Offerings (IPOs) are pivotal events in the lifecycle of companies and the stock market. For companies, an IPO represents their first opportunity to sell shares to the public and become publicly listed entities. For investors, IPOs open the door to early investment opportunities in growing businesses. Understanding the IPO process in India is essential for both parties to navigate this complex but structured journey with clarity and confidence.

This guide provides a detailed, step-by-step explanation of the IPO process in India, covering regulatory requirements, key steps, important terms, and common challenges faced during this procedure.

An Initial Public Offering (IPO) is the first sale of a company’s shares to the public, allowing it to raise capital from a wide investor base. Prior to an IPO, companies are typically privately owned by founders, early investors, or venture capitalists. Through an IPO, a company not only gains access to public funds but also enhances its brand visibility, credibility, and valuation.

In India, IPOs are governed by regulatory frameworks laid down by the Securities and Exchange Board of India (SEBI), along with stock exchanges such as the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). This ensures transparency, investor protection, and orderly functioning of capital markets.

Companies undertake the IPO process primarily to raise capital for expansion, debt repayment, acquisitions, or other corporate purposes. Going public allows companies to tap into a vast pool of public investors, providing access to substantial funds that might not be available through private financing. Additionally, an IPO enhances the liquidity and marketability of the company’s shares, enabling existing shareholders such as founders, venture capitalists, and early investors to partially or fully exit their investments.

Beyond capital, going public improves a company’s public image and credibility, which can help in attracting customers, partners, and talented employees. It also imposes greater transparency and regulatory oversight, which can strengthen corporate governance and investor confidence. However, the IPO process involves rigorous regulatory compliance, due diligence, and marketing efforts to ensure that the company is ready for public scrutiny and that investors receive adequate information to make informed decisions.

Thus, the IPO process is essential for balancing the interests of the company, existing shareholders, and new public investors while maintaining market integrity and confidence.

Step 1 – Decision and Board Approval

The IPO journey begins with a strategic decision by the company’s board of directors to go public. This decision involves assessing the company’s readiness, financial health, and market conditions. The board formally approves the plan to raise capital through an IPO, determining the size and objectives of the offering.

This initial approval sets the foundation for the IPO process and triggers preparations such as selecting advisers and initiating regulatory filings.

Timeline: Planning and board approval typically take about 2 weeks.

Step 2 – Appointment of Merchant Bankers and Underwriters

Once the decision is made, the company appoints merchant bankers, also called lead managers, who coordinate the IPO process. These experts assist with regulatory compliance, documentation, pricing strategies, and marketing efforts.

Underwriters form a syndicate to share the risk associated with selling the shares. They commit to purchasing unsold shares, thereby assuring the company that the targeted capital will be raised. This underwriting agreement protects the issuer from market uncertainties.

Timeline: Appointment happens soon after board approval, within the initial planning phase (part of the 2 weeks).

Step 3 – Due Diligence and Drafting of Prospectus

A critical step involves conducting due diligence, a thorough audit of the company’s financials, operations, legal standing, and management credentials. The due diligence process helps identify risks and validate disclosures.

Following this, the company usually prepares the Draft Red Herring Prospectus (DRHP), a preliminary document submitted to SEBI. The DRHP contains detailed information about the business, financial statements, risk factors, promoters, use of funds, and the IPO plan. It serves as the basis for SEBI’s review and investor scrutiny.

Timeline: Due diligence takes around 4 to 5 weeks. Draft Red Herring Prospectus (DRHP) preparation takes about 1 week.

Step 4 – Filing with SEBI and Regulatory Approval

The DRHP is filed with SEBI for review. SEBI examines the document for compliance with regulatory norms, completeness of disclosures, and investor protection measures. The regulator may seek clarifications or request additional disclosures.

Upon satisfaction, SEBI grants approval, allowing the company to publish the Red Herring Prospectus (RHP) and open the IPO for subscription. This marks a critical regulatory milestone enabling the IPO to proceed.

Timeline: SEBI review and approval can take 4 to 8 weeks, during which SEBI may ask for clarifications.

Step 5 – Marketing and Roadshows

To generate investor interest, the company and its merchant bankers embark on a roadshow—a series of presentations and meetings with potential investors, including institutional investors, mutual funds, and high net worth individuals.

Roadshows help the company communicate its growth story, competitive advantages, and financial prospects, aiming to build confidence and demand for the shares.

Timeline: Marketing including roadshows typically occurs after SEBI approval and DRHP clearance, lasting about 2 to 3 weeks.

Step 6 – Price Band Determination and Bidding

For most Indian IPOs, the book-building process is used to determine the final share price. The company sets a price band, specifying the minimum and maximum bid prices. Investors place bids within this range during the subscription window.

The demand from investors across various price points helps establish the cut-off price, or the final price at which shares will be allotted.

Timeline: Price band is set just before IPO launch; bidding usually takes at least 3 days during the subscription window.

Step 7 – Subscription and Allotment

During the IPO subscription period, investors apply for shares by placing bids online or offline through their brokers. Investors are categorised into retail, non-institutional, and qualified institutional buyers.

If the IPO is oversubscribed (more bids than available shares), allotment is done proportionally or by lottery, especially for retail investors. Application money for unsuccessful bids is refunded.

Timeline: Subscription period lasts a minimum of 3 days. Allotment is done within 1 day of issue closure.

Step 8 – Listing and Trading on Stock Exchange

After allotment, shares are credited to investors’ demat accounts and the company’s stock gets listed on exchanges like NSE and BSE. The first day of trading often witnesses volatility as market participants react to the IPO.

Post-listing, the company must comply with ongoing disclosure and corporate governance requirements to maintain investor confidence and regulatory compliance.

Timeline: Listing happens within 3 days after allotment and issue closure. Post-listing compliance and disclosures continue indefinitely as part of ongoing regulatory requirements.

• Prospectus: The official document containing detailed information about the IPO.
  

• Red Herring Prospectus (RHP): Preliminary prospectus with incomplete price details.
  

• Underwriting: Guarantee by underwriters to purchase unsold shares.
  

• Lock-in Period: Duration during which promoters cannot sell their shares post-IPO.
  

• Price Band: Range set for bids in a book-building IPO.
  

• Oversubscription: When demand exceeds supply.
  

• Syndicate: Group of underwriters managing the IPO.
  

• Allotment: Distribution of shares to successful bidders.

Following are some of the common challenges involved in the IPO process:

Regulatory Delays:

SEBI’s approval process for IPOs involves a detailed examination of the draft red herring prospectus (DRHP) and other submitted documents. This includes assessing financial disclosures, risk factors, promoter backgrounds, and compliance with applicable regulations. During this scrutiny, SEBI may issue multiple rounds of queries or seek clarifications, especially if there are inconsistencies or gaps in the information provided. These back-and-forth interactions can significantly extend the timeline for approval. As a result, companies may face delays in receiving the final observation letter from SEBI, which is mandatory before proceeding with the IPO launch. Such regulatory delays can impact market timing and investor sentiment.

Market Volatility:

Market conditions play a critical role in the success of an IPO. Sudden shifts in stock indices, interest rate changes, or global events can create uncertainty among investors. During volatile periods, even fundamentally strong companies may struggle to attract sufficient investor interest. Fluctuating sentiment can impact demand and force issuers to re-evaluate their IPO plans. In extreme cases, companies may defer their listing to a more stable time or even withdraw the offer entirely. Such delays can affect funding timelines, business expansion plans, and investor confidence. Hence, companies often monitor market trends closely before finalising IPO dates.

Pricing Difficulties:

Setting the right IPO price band is one of the most challenging aspects of the process. If the price is set too high, it may discourage investors and lead to under-subscription. Conversely, if priced too low, the company might raise less capital than expected, affecting valuations and future growth plans. Striking this balance requires deep analysis of peer valuations, market conditions, and investor appetite. Investment bankers assist in this process, but uncertainties in demand can complicate decisions. A mispriced IPO can also impact post-listing performance, leading to reputational concerns for both the issuer and underwriters.

Investor Education:

Retail investors form a significant part of IPO subscriptions in India, but many still lack adequate understanding of the IPO process. Misconceptions about guaranteed profits or lack of awareness about company fundamentals can lead to uninformed investment decisions or complete disengagement. Low subscription rates from retail investors often reflect poor communication or insufficient education. To overcome this, companies and merchant bankers must focus on clear, accessible information during the marketing phase. Investor presentations, simplified prospectuses, media outreach, and digital campaigns can help raise awareness, explain risks and benefits, and ultimately boost participation from the retail segment.

The IPO process in India is a structured, regulated journey enabling companies to raise capital and investors to participate in corporate growth stories. Each step, from board approval to listing, involves multiple stakeholders working in coordination to ensure transparency and investor protection. For investors, understanding the IPO process enhances informed participation, while companies benefit from access to broader capital pools.

This content is for educational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.

1. Bajaj Finserv Markets – IPO Process
   

2. Securities and Exchange Board of India (SEBI)
   

3. National Stock Exchange (NSE)
   

4. Bombay Stock Exchange (BSE)
   

5. Investopedia – Initial Public Offering
   

6. Zerodha Varsity – IPO Module