Understanding IPO Cycle

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.

Pre-IPO Stage

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
  

Appointment of Key Intermediaries

• 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.
  

Due Diligence and Compliance Setup

• Legal documentation, promoter background checks, and risk disclosures
  

• Establishing corporate governance frameworks and standardising reporting

IPO Structuring and Filing

This stage includes creating and filing critical regulatory documents with SEBI and stock exchanges.

Draft Red Herring Prospectus (DRHP)

• Contains information on business model, financials, promoter background, use of proceeds, and risk factors

• DRHP is published for public comments and SEBI observations
  

Filing with SEBI

• 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

Marketing and Investor Outreach

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)

IPO Application and Subscription Phase

This is the live phase where investors can apply for the IPO through broker platforms and banking apps.

Subscription Window

• 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

Allotment and Listing 

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

Post-Listing Compliance 

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)
  

There are costs and risks associated with going public that companies must consider such as:

Cost and Time

Legal, audit, underwriter, and marketing fees add significant costs. The process involves a significant timeframe, like a few months.

Regulatory Pressure

Listed companies must disclose every material change, exposing them to scrutiny.

Market Volatility

External economic and geopolitical factors can influence IPO response for companies.

Dilution of Control

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.

• SEBI ICDR Regulations
  

• National Stock Exchange of India
  

• BSE India – IPO Listing Process
  

• SEBI Investor Education Portal
  

• DRHP Filing Archives – SEBI