IPO Process in India: An Overview

Initial Public Offerings are important events in the lifecycle of companies and capital markets. For a company, an IPO is the first public sale of its shares and a step towards becoming a listed entity.

Understanding the IPO process in India helps both companies and investors understand how this regulated journey works. The IPO procedure includes internal approvals, appointment of intermediaries, preparation of documents, regulatory review, bidding, allotment, and listing.

This article explains the main stages of the process, the parties involved, the documents used, and the common procedural challenges that may arise.

An Initial Public Offering is the first sale of a company’s shares to the public. Before an IPO, a company is usually owned by founders, promoters, private investors, venture capital firms, or other early shareholders.

Through an IPO, a company may raise funds for purposes such as:

• Business expansion

• Capital expenditure

• Debt repayment

• Acquisitions

• Working capital

• General corporate purposes
   

An IPO may also allow existing shareholders to sell part of their holdings through an Offer for Sale.

In India, IPOs are governed by regulatory requirements issued by SEBI. The listing process also involves recognised stock exchanges such as the National Stock Exchange and BSE. These requirements cover disclosures, investor protection, allotment, listing, and ongoing reporting.

Companies undertake the IPO process mainly to raise capital from public investors. The funds may be used for expansion, debt repayment, acquisitions, working capital, or other purposes stated in the offer document.

Going public also creates a market through which shares can be traded after listing. Existing shareholders, including promoters and early investors, may receive liquidity where the issue includes an Offer for Sale.

The listing process requires the company to provide detailed information about its business, financial position, management, risks, and use of funds. It also imposes greater transparency and regulatory oversight as part of the listing requirements.

The IPO process balances the interests of the issuing company, existing shareholders, applicants, regulators, and stock exchanges. It establishes a standard procedure for disclosures, pricing, allotment, and listing.

The steps in the IPO process follow a defined sequence from board approval to listing. The IPO process steps may vary slightly depending on the type of issue, but the broad IPO process flow remains similar across most public offerings in India. Additionally, the timelines mentioned in below sections are indicative and may vary depending on the issuer, regulatory observations, market conditions, and the complexity of the issue. 

Step 1 – Decision and Board Approval

The IPO process begins when the company’s board of directors considers and approves the proposal to go public.

The board reviews factors such as:

• Purpose of the issue

• Amount of capital to be raised

• Financial readiness

• Market conditions

• Proposed use of funds

• Possible issue structure

The company may choose to issue new shares, allow existing shareholders to sell shares, or use a combination of both.

After approval, the company begins appointing advisers and preparing for regulatory filings.

Timeline: Planning and board approval may take around two weeks, although the period varies by company.

Step 2 – Appointment of Merchant Bankers and Underwriters

The company appoints SEBI-registered merchant bankers, also known as book-running lead managers, to coordinate the issue.

Their responsibilities may include:

• Managing regulatory filings

• Coordinating due diligence

• Preparing offer documents

• Supporting the pricing process

• Managing investor communication

• Coordinating with legal advisers, auditors, registrars, and stock exchanges

Underwriters may also be appointed. Their obligations depend on the underwriting arrangement and the terms of the issue.

Timeline: Appointments generally take place during the initial preparation stage.

Step 3 – Due Diligence and Drafting of Prospectus

The company and its appointed advisers conduct due diligence before filing the offer document.

This review covers areas such as:

• Financial statements

• Business operations

• Promoter background

• Legal proceedings

• Material contracts

• Risks

• Corporate structure

• Use of issue proceeds

The company then prepares a Draft Red Herring Prospectus. The document contains detailed information about the company, issue structure, financial records, management, risk factors, and proposed use of funds.

The price or final issue size may not be fully stated at this stage.

Timeline: Due diligence may take four to five weeks, while preparation of the draft document may require additional time.

Step 4 – Filing with SEBI and Regulatory Approval

The Draft Red Herring Prospectus is submitted to SEBI for review.

SEBI checks whether the document complies with disclosure and regulatory requirements. During the review, the regulator may:

• Ask for clarifications

• Seek additional disclosures

• Require corrections

• Review promoter and management information

• Examine stated risk factors

• Check the proposed use of funds

After the company addresses the observations, SEBI may issue its observations on the draft offer document. The company can then proceed with the next stages of the issue, subject to other approvals.

Timeline: SEBI’s review may take several weeks and can vary depending on the number of clarifications required.

Step 5 – Marketing and Roadshows

After the regulatory review stage, the company and its merchant bankers may conduct investor meetings and roadshows.

Roadshows allow the company to share information about its business, financials, and growth plans with potential investors.

The presentations may cover:

• Company background

• Business operations

• Industry position

• Financial records

• Management

• Issue objectives

• Risk factors

• Use of funds

The information shared must remain consistent with the offer documents and applicable disclosure requirements.

Timeline: Roadshows and investor presentations may continue for two to three weeks before the issue opens.

Step 6 – Price Band Determination and Bidding

Most IPOs in India use the book-building process.

Under this method, the company and merchant bankers set a price band containing:

• Floor price

• Upper price

• Permitted bidding range

Applicants submit bids within the stated band during the subscription period. Retail applicants may also choose the cut-off price option where available.

Demand received at different prices is recorded in the order book. After the bidding period closes, the company and merchant bankers determine the final issue price according to the applicable process.

Timeline: The price band is announced before the issue opens, while the bidding period usually remains open for at least three working days.

Step 7 – Subscription and Allotment

During the subscription period, applicants submit bids through permitted channels such as ASBA-supported banks, brokers, and UPI-enabled platforms.

Applications are divided into categories such as:

• Qualified Institutional Buyers

• Non-Institutional Investors

• Retail Individual Investors

• Employees or shareholders, where reserved categories apply

After the issue closes, the registrar checks valid applications and completes the process of IPO allotment.

Where demand exceeds the shares available, allotment follows the applicable basis of allotment. Retail allotment may involve a computerised draw where the issue is oversubscribed.

Funds remain blocked under ASBA until allotment is completed. Amounts linked to unsuccessful or partially successful applications are unblocked according to the final allotment.

Timeline: The allotment process is completed after issue closure in accordance with the prescribed listing schedule.

Step 8 – Listing and Trading on Stock Exchange

After allotment, shares are credited to successful applicants’ demat accounts. The company’s shares are then admitted for trading on the approved stock exchange or exchanges.

The opening price on the listing day is determined through the exchange’s price-discovery process. After trading begins, the market price changes according to demand and supply.

Post-listing, the company must comply with ongoing disclosure and corporate governance requirements set by SEBI and the stock exchanges.

These requirements may include:

• Periodic financial reporting

• Disclosure of material events

• Shareholding disclosures

• Corporate governance reporting

• Insider trading controls

• Board-related disclosures

Timeline: Listing generally takes place within the regulatory schedule applicable to the issue.

• Prospectus: The formal offer document containing information about the issue and the company.

• Draft Red Herring Prospectus: The preliminary offer document filed with SEBI before the final price and issue details are confirmed.

• Red Herring Prospectus: The offer document issued before the IPO opens, containing most issue details but not always the final price.

• Underwriting: An arrangement under which an underwriter agrees to subscribe to specified shares if required under the agreement.

• Lock-in Period: A period during which specified shareholders cannot sell certain shares after the issue.

• Price Band: The range within which applicants may submit bids in a book-built issue.

• Oversubscription: A situation where the number of shares applied for exceeds the number available.

• Syndicate: A group of intermediaries involved in managing and distributing the issue.

• Allotment: The allocation of shares to successful applicants.

• Cut-off Price: The final issue price determined through book building, where retail applicants may bid without selecting a specific price within the band.

• ASBA: Application Supported by Blocked Amount, under which application funds remain blocked in the applicant’s bank account until allotment.

The IPO process may face procedural, regulatory, and market-related challenges.

Regulatory Delays

SEBI reviews the Draft Red Herring Prospectus and supporting documents in detail.

The review may cover:

• Financial disclosures

• Promoter background

• Legal proceedings

• Risk factors

• Use of funds

• Corporate structure

• Compliance with issue requirements
   

If SEBI identifies gaps or inconsistencies, it may seek additional information or corrections. Multiple rounds of clarification may extend the approval timeline.

Market Volatility

Sudden shifts in stock indices, interest rates, or global events can affect investor demand during an IPO, which may lead companies to adjust their listing timeline.

Changes in market conditions may occur between the filing of the draft document and the opening of the issue. This may affect:

• Timing of the offer

• Demand across categories

• Pricing discussions

• Issue size

• Marketing schedule

In some cases, a company may postpone or withdraw an issue according to applicable rules.

Pricing Difficulties

Setting the price band involves comparing similar listed companies and assessing market conditions, which can be challenging given uncertain investor demand.

The pricing process may consider:

• Financial performance

• Earnings

• Net assets

• Business model

• Sector conditions

• Comparable listed companies

• Demand during investor meetings

• Proposed issue size

The final price is determined after considering bids received during the book-building period.

Investor Education

Many retail investors have limited familiarity with the IPO process, which is why companies and merchant bankers provide investor presentations, simplified prospectuses, and other materials to explain how the process works.

These materials may explain:

• Issue dates

• Price band

• Risk factors

• Application methods

• Allotment process

• Use of funds

• Company operations

All investor communication must remain consistent with the offer document and regulatory requirements.

The IPO process in India is a structured, regulated journey involving multiple stakeholders, from board approval through listing, designed to ensure transparency and investor protection. It includes due diligence, preparation of offer documents, SEBI review, price discovery, subscription, allotment, and admission to trading. After listing, the company becomes subject to continuing disclosure and corporate governance requirements.