IPO Cycle Advantage, Process and Different Stages

An Initial Public Offering (IPO) is when a private company transitions into a publicly traded entity. They do so by opening their shares to the general public for the first time. 

Understanding the IPO cycle is essential for you and other participants as it outlines the process companies undergo when getting listed on the stock exchanges. The process begins with preparation and ends with listing. Knowing the allotment time and other mechanisms helps you participate in the process in a more informed manner.

An IPO cycle refers to the various stages a company goes through to launch its IPO. It allows you to invest in companies early and benefit from their future growth. 

The IPO cycle begins with preparation and concludes with the listing of shares on stock exchanges, enabling trading in the secondary market. It involves various regulatory filings, marketing efforts, subscription phases, and allotment procedures. 

These advantages support both the growth of companies and the development of the capital markets.

Companies and regulators follow the steps below to ensure a transparent and efficient process. 

1.Pre-IPO Preparation

In the initial phase, companies hire an underwriter or an investment banker. They analyse market conditions and assess a company’s financial and business fundamentals. The underwriter guides the company through the IPO process, which begins with signing an agreement outlining mutual responsibilities. 

Following this, the company prepares and files a Draft Red Herring Prospectus (DRHP). Companies file it with the Securities and Exchange Board of India (SEBI). The underwriter assists in compiling and presenting this information in compliance with regulations.

2.Filing and Regulatory Approval

The company submits a draft prospectus to SEBI for review. SEBI evaluates the submission for compliance with disclosure norms and may request modifications. Simultaneously, stock exchanges review the application to assess eligibility. This regulatory approval ensures you receive accurate information. 

3.Marketing and Roadshows

To generate your interest, companies and their bankers organise roadshows and presentations. These sessions provide insights into the business model, financials, and growth prospects. They enable you to make informed decisions regarding your investments in IPOs. 

4.IPO Opening and Subscription

The IPO opens for subscription, allowing you to bid for shares. You can apply via brokers or online platforms, specifying the number of shares and price (in case of book-building). The subscription period typically lasts a few days. 

Companies going through the book-building process need to determine a price band for their IPOs, within which you can bid for shares. 

5.Allotment and Listing

Following subscription closure, subscribers are alloted shares based on demand and regulatory guidelines. The registrar communicates the allotment status to you within a stipulated timeframe. Once the allotment is complete, the company’s shares will get listed. They will begin trading on stock exchanges like the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). 

An IPO allotment status indicates whether you have received shares in the IPO. Typically, IPO allotment status time is 3–6 days or within a week after the subscription closes. You can check their status via:

• Registrar’s website

• Depository participant platforms

• Stock exchange portals NSE and BSE

Timely allotment updates help you plan your post-IPO investments effectively. 

1.Early Investment Opportunity
Gain access to a company’s equity at a potentially lower price before it gets listed on stock exchanges.

2.Listing Gains
Strong demand can lead to a price jump on the listing day, offering short-term profit potential.

3.Portfolio Diversification
IPOs introduce new businesses and sectors into your portfolio, offering fresh exposure.

4.Access to Growth-Oriented Companies
IPOs often feature companies in expansion mode, offering long-term growth potential for early investors.

5.Retail Investor Reservation
SEBI regulations reserve a portion of shares for retail investors, giving them a fair opportunity to participate.

1.Uncertainty in Allotment
High demand often leads to oversubscription, making allotment purely based on lottery, especially in popular IPOs.

2.Listing Day Volatility
Prices can fluctuate sharply on listing day, and gains are not guaranteed.

3.Limited Historical Data
Since the company is newly listed, investors have limited access to long-term financial performance or track record.

4.Hype vs. Fundamentals
Market buzz may drive participation, but not all IPOs are fundamentally strong or fairly priced.

5.Capital Lock-In During IPO Window
Funds remain blocked (via ASBA/UPI) for a few days during the application and allotment phase, affecting liquidity.

The IPO cycle is a structured journey that transforms private companies into public ones. It also opens new investment opportunities and promotes market transparency. By understanding the IPO cycle, 

you can engage with IPOs confidently. Awareness of the allotment process and timelines further supports informed decision-making. 

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.

• Securities and Exchange Board of India (SEBI): https://www.sebi.gov.in/

• National Stock Exchange of India (NSE): https://www.nseindia.com/

• Bombay Stock Exchange (BSE): https://www.bseindia.com/

• Ministry of Corporate Affairs (MCA): https://www.mca.gov.in/

• Investopedia: https://www.investopedia.com/