Understanding IPO Participation in India

Initial Public Offerings (IPOs) form part of India’s capital market structure. They represent a mechanism through which companies raise equity capital from the public and transition to being listed entities.

An IPO (Initial Public Offering) is the process through which a privately held company offers its shares to the public for the first time. Upon completion, the company becomes listed on recognised exchanges such as the Bombay Stock Exchange or the National Stock Exchange of India.

From a market perspective, an IPO involves:

• Provision of business information via mandatory disclosures like the Draft Red Herring Prospectus (DRHP)

• Public access to company financials, risk factors, and capital structure

• Inclusion of new companies and sectors into the listed equity universe

IPO participation is influenced by several structural and regulatory factors associated with primary market listings.

1. Pre-Listing Share Allocation

When a company lists its shares, IPO allotment allows investors to acquire shares prior to continuous secondary market trading. Share price performance post-listing depends on company fundamentals and market conditions.

2. Transparent Information Flow

Companies filing for IPOs disclose financial statements, business risks, management information, and utilisation of proceeds through documents such as the Draft Red Herring Prospectus and Red Herring Prospectus. These disclosures are reviewed under the regulatory framework of the Securities and Exchange Board of India.

Key documents include:

• Draft Red Herring Prospectus (DRHP)

• Financial statements

• SEBI observations

3. Possible Listing Price Variations

If IPO demand exceeds available shares, listing price may differ from the offer price. Listing performance depends on subscription levels, investor demand, and broader market conditions. Such outcomes are not guaranteed.

4. Access to Emerging or Newly Listed Sectors

IPOs often introduce companies from sectors such as fintech, renewable energy, e-commerce, and healthcare technology into the listed market. This expands the range of available equity sectors.

5. Portfolio Diversification

IPO listings add newly listed companies to the investable universe. Inclusion of such companies alters portfolio composition by introducing additional sectors or business models.

Example: A portfolio containing banking and FMCG stocks may include a newly listed technology company.

6. Allotment Opportunities for Retail Investors

Under SEBI regulations, a minimum of 35% of the issue size is reserved for retail individual investors in book-built IPOs. Allotment is subject to subscription levels and category-wise demand.

7. ASBA Facility and Fund Blocking

ASBA (Application Supported by Blocked Amount) is a mechanism through which the IPO application amount remains blocked in the applicant’s bank account until allotment. Funds are debited only upon successful allotment.

Features include:

• No upfront debit

• Funds remain blocked during the bidding period

• Automatic unblocking in case of non-allotment

8. Ownership and Shareholder Rights

Allotted shareholders become equity holders in the company. Rights may include:

• Voting on shareholder resolutions

• Receipt of annual reports

• Participation in Annual General Meetings

• Eligibility for dividends, subject to declaration

IPO participation involves access to newly listed companies, regulated disclosures, defined allotment categories, and exchange-based subscription mechanisms. Final outcomes vary based on demand levels, valuation, and prevailing market conditions.

For issuing companies, IPOs enable:

• Equity capital raising

• Debt reduction (if proceeds allocated)

• Broader shareholder base

• Market-determined valuation

• Public market visibility

IPO participation is also associated with factors such as pricing mechanisms, allotment processes, and disclosed risk elements outlined in offer documents.

1. IPO Valuation and Pricing

Most IPOs follow the book-building method, where price bands are determined and final pricing is based on subscription demand.

2. Lottery System in Over-Subscribed IPOs

In oversubscribed issues, allotment in the retail category may be determined through a proportionate or lottery-based mechanism.

3. Long-Term Business Potential

Post-listing share performance depends on company fundamentals, industry conditions, and broader economic trends.

4. Risks Involved

Risk factors disclosed in offer documents may include:

• Market volatility

• Economic downturns

• Execution risks

• Corporate governance concerns

These examples reference historical IPOs:

• BSE Ltd. – Listed in 2017

• ICICI Lombard General Insurance – Public issue in general insurance sector

• Lux Industries – Listed consumer segment participant

IPOs form part of India’s primary capital market structure. They introduce newly listed companies into the equity market and operate under defined regulatory frameworks governing disclosures, allotment, and listing. Their impact on portfolio composition and market participation depends on company-specific and market-wide factors.

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.