When a company decides to switch from a private enterprise to a public company, it offers some shares to the general public. This first offer is commonly known as an Initial Public Offering or IPO.

 

The IPO process requires strategising with the approval of the Security and Exchange Board of India (SEBI). The process of planning and executing an IPO, called an IPO cycle, may take days or even months. 


Completing all the steps of the IPO cycle is crucial for the company's financial future. Read on to know what is an IPO cycle, the steps included in it, and more.

Meaning of IPO Cycle

Before you proceed, it is important to know what an IPO cycle is and why it is important. Experts have explained the IPO cycle as the systematic set of processes followed when a company shifts from private ownership to a public enterprise. 


The process includes legal practices, enlisting of shares, allotment of shares, and more. Though there are many steps involved, each step of the IPO cycle is equally important. From underwriting, drafting, marketing, and bidding, companies can only proceed to the next step when the previous step is complete.

Steps of an IPO Cycle

Now that you know how to answer if someone asks you, “What do you understand by ‘IPO cycle’?”, learn the steps involved. Each step is essential to explain the IPO cycle and its importance. 

 

While you can segregate the complete cycle into three stages, here are all the steps of an IPO cycle:

1. Pre-IPO Stage

  • Hiring an Underwriter

The first step of an IPO cycle is to hire an investment banker as an underwriter to conduct market research for the company. The company and the investment banker sign an underwriting agreement.

 

According to this agreement, the issuing company provides the required information to help assess their financial health and business plans. 

  • Preparation of the Draft Red Herring Prospectus (DRHP)

In the next step, the underwriter drafts a red herring prospectus, which is a document that contains all details of the company listing for initial public offering. This includes its financial performance for the last 3 years, estimated size, liabilities, potential business plan, etc. 

  • Awaiting SEBI Approval 

The company must then submit the DRHP to SEBI for approval and a registration statement. Only after SEBI approves the IPO application can the company move to the next step of the IPO cycle. 

2. IPO Stage

  • Roadshow

Once they receive the approval, the issuing company initiates a promotion for the upcoming IPO to attract potential investors. The roadshow aims to attract high-net-worth individuals and corporations. 

 

It also involves setting up meetings with potential investors to showcase the investment opportunity.

  • Price Band

With the help of the underwriter, the company decides the price band of the shares for the IPO. The prices per share depend on the growth potential, performances and other factors.

  • Bidding

In the bidding stage of the IPO cycle, shares are available for the investors through public bidding. 

3. Post-IPO Stage

  • Share Allotment

 As the bidding window comes to a close, the next course of action by the company is to issue shares through the allotment process. In case of oversubscription or under-subscription, an underwriter must decide the proportion of allotment.

  • Listing

This is the final step of the IPO cycle. After the betting window closes, all the investors receive their shares in the demat account. 

 

Investing in an IPO is considered beneficial by many who trade in the stock market. However, to invest in an IPO, you must have a demat account. If you do not have one, you can open it instantly on Bajaj Markets.

 

Choose from different subscription packs with no annual maintenance charges, the lowest brokerage fees and get many other cost-saving benefits. You can earn better profit with expert advice and free daily trading calls too.

FAQs on the IPO Cycle

The IPO cycle is the process that includes all the stages a company must go through when enlisting on the stock market.

From 1st September 2023, company shares will be listed on the stock market after 3 days of the IPO bidding period per the SEBI guideline.

An IPO is a time-consuming process with many steps involved. Moreover, during the pre-IPO stage, the company must pay many legal and compliance fees that require a significant amount of investment.

DRHP is a document that includes the financial performance, business plan, and other company details. The information available through this draft attracts potential investors. Always check it before you decide to invest in an IPO.

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