This article explains how companies transition from private ownership to public listing through an Initial Public Offering (IPO).
The Initial Public Offering (IPO) cycle refers to the multi-stage process a privately-held company undertakes to become publicly listed on a stock exchange. It includes business evaluations, regulatory compliance, marketing, pricing, share allotment, and post-listing responsibilities.
For companies, this transition involves accessing capital and public markets. For investors, understanding the IPO cycle can assist in evaluating a company's readiness and public offering details. This article explains each phase of the IPO cycle to provide readers with information about this capital-raising mechanism.
The IPO cycle is the step-by-step process a company follows to launch its IPO. It begins with an internal decision to go public and concludes with the company’s shares being traded on stock exchanges.
Understanding the IPO cycle is important for both companies and investors to navigate expectations and compliance.
This stage prepares the company for the IPO by focusing on its internal systems, governance, and readiness to go public.
Internal Business Evaluation
Assessment of business performance, expansion plans, and capital needs
Determination of IPO timing based on market conditions and strategic goals
Review of assets, liabilities, and cash flow
Investment bankers: Advise on valuation, structuring, and underwriting
Legal compliance team: Ensures adherence to SEBI and Companies Act
Auditors: Conduct forensic and financial audits for due diligence
Underwriters: Agree to purchase unsold shares, thereby influencing risk for the issuer.
Legal documentation, promoter background checks, and risk disclosures
Establishing corporate governance frameworks and standardising reporting
This stage includes creating and filing critical regulatory documents with SEBI and stock exchanges.
Draft Red Herring Prospectus (DRHP)
DRHP is published for public comments and SEBI observations
DRHP is submitted under SEBI’s Issue of Capital and Disclosure Requirements (ICDR) Regulations
SEBI reviews, asks questions (observations), and may request additional disclosures
Filing with Stock Exchanges
Applications submitted to NSE, BSE or other recognised exchanges for in-principle listing approval
During this phase, the company actively markets the IPO to potential investors.
Roadshows
Management presents information on the company’s business, its plans, and reasons for going public.
Conducted in financial hubs and virtually to reach both institutional and retail investors
Publications and Promotional Material
Articles, interviews, and educational videos to build brand visibility and explain IPO details
Setting the Price Band
Done through a book-building process (dynamic pricing) or fixed pricing
Price band is disclosed in the Red Herring Prospectus (RHP)
This is the live phase where investors can apply for the IPO through broker platforms and banking apps.
Usually open for 3 working days
Investors apply through ASBA (Application Supported by Blocked Amount), ensuring funds are only debited if allotment occurs
Investor Categories
Qualified Institutional Buyers (QIBs) – 50% reservation
Non-Institutional Investors (NIIs) – 15% reservation
Retail Investors – 35% reservation (with a cap on investment per PAN)
Minimum Lot Size and Issue Price
Minimum lot size indicates the smallest investment unit
Issue price is finalised post-book building or disclosed upfront in fixed-price offerings
This stage finalises share allotment and begins trading on the stock exchange.
Allotment of IPO Shares
Based on demand, oversubscription, and reservation rules
Allotment details published on registrar and exchange websites
Refunds and Credit of Shares
Refunds issued for unsuccessful applicants
Shares credited to demat accounts of successful applicants
Listing on Stock Exchanges
The first day of trading sees a price in relation to the issue price, which may be above or below it.
Listing marks the company’s formal entry into public markets
Once listed, the company becomes accountable to public shareholders and regulators.
SEBI and Stock Exchange Obligations
Quarterly results and earnings disclosures
Corporate governance (Board structure, independent directors, whistle-blower policy)
Immediate disclosure of material events (e.g., mergers, promoter exit, litigation)
Audit and Transparency
Annual statutory audits
Compliance with SEBI LODR (Listing Obligations and Disclosure Requirements)
Funds raised can be used for expansion, debt repayment, or operations.
Going public can change a company’s brand reputation and investor perception.
Promoters, early investors, and employees with ESOPs have an exit option.
Listed companies can offer stock-linked compensation as a component in talent acquisition.
There are costs and risks associated with going public that companies must consider such as:
Legal, audit, underwriter, and marketing fees add significant costs. The process involves a significant timeframe, like a few months.
Listed companies must disclose every material change, exposing them to scrutiny.
External economic and geopolitical factors can influence IPO response for companies.
Issuing new equity reduces promoter stake unless structured via Offer for Sale (OFS).
The IPO cycle is a regulated process that presents options for both companies and investors. For companies, it’s a strategic move to raise capital, influence brand recognition, and support expansion. For investors, understanding each step—DRHP, subscription, allotment, listing, and compliance—can support informed participation and expectation alignment.
Whether one is exploring IPOs or evaluating public listing, understanding the IPO cycle provides information.
This content is for informational 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.
Sources
SEBI ICDR Regulations
National Stock Exchange of India
BSE India – IPO Listing Process
SEBI Investor Education Portal
DRHP Filing Archives – SEBI
It is the process a private company follows to go public—starting with internal readiness and ending in listing on stock exchanges.
The IPO cycle can vary in duration depending on the company’s preparedness and SEBI approvals.
The Draft Red Herring Prospectus contains financial and legal disclosures and must be submitted to SEBI for IPO approval.
Retail investors can apply through ASBA-enabled bank accounts or via UPI through broker platforms.
The company’s shares start trading publicly and it must follow regular reporting, compliance, and disclosure obligations.