How an IPO Works in India: A Beginner's Full Guide

Almost every Indian retail investor has applied for at least one IPO. Most have done it because a WhatsApp forward said the listing would pop, not because they understood what they were buying.

That temptation is understandable — IPO apps make the process feel as easy as ordering food, but the decision is still an investment decision, with the same homework attached.

Understanding the actual process makes the difference between an investor and a lottery ticket buyer. The mechanics are not difficult, they are just rarely explained without jargon.

What an IPO actually is

A private company has a small number of shareholders, usually the founders, employees and a handful of private equity funds. An IPO is the event where the company invites the general public to become shareholders too.

Some of the shares offered come from existing shareholders cashing out, called an Offer for Sale (OFS). Some are freshly minted by the company to raise new money for itself, called a Fresh Issue. Most modern Indian IPOs are a mix of both.

The single biggest thing for a new investor to grasp is who actually gets your money. In a Fresh Issue the company gets it. In an OFS the existing shareholders get it. The instrument looks identical from your side; the destination of the cash is not.

The moment the IPO closes and the shares list on NSE and BSE, the company becomes a public company. Its price stops being set by the founders and starts being set by every buyer and seller in the open market.

The Indian IPO process, step by step

Every mainboard IPO in India follows the same regulated path. The timeline below is roughly what happens from the day the company decides to go public to the day it lists.

DRHP vs RHP — the two prospectus versions

You will see two prospectus documents referenced in this article. Both come from the same company and the same SEBI review, but at different stages.

1. Months -12 to -6

   Board approval and merchant banker selection

   The company's board passes a resolution to go public. It appoints merchant bankers, usually a mix of Kotak, Axis Capital, ICICI Securities, JM Financial and a foreign bank. These bankers will run the entire process and underwrite the issue.

2. Month -6

   DRHP filing with SEBI

   The bankers and the company file a Draft Red Herring Prospectus, or DRHP, with SEBI. It has every detail of the business, the financials, the risk factors and the use of proceeds, but no final price or final issue size. SEBI takes around three to four months to review it.

3. Month -2

   SEBI observations and RHP

   SEBI issues observations, the company answers them, and an updated Red Herring Prospectus, or RHP, is filed. Roadshows happen, anchor investors are pitched, and the price band is finalised. The RHP is what retail investors should actually read before applying.

4. Day 0 to 3 (issue open)

   The issue opens — anchor, then retail

   Anchor allocation happens one working day before retail opens. Then the issue is open for three to four working days. Retail investors apply through ASBA on Zerodha, Groww, Upstox, or directly on their bank's net banking. The application money is blocked in the bank account via a UPI mandate, not debited yet.

5. T+1 to T+2 (allotment)

   Allotment finalised, refunds released

   The registrar finalises the basis of allotment within one to two working days after the issue closes. The unblocked balance returns to bank accounts and the allotted shares are credited to demat accounts of successful applicants.

6. T+3 (listing)

   Listing on NSE and BSE

   The stock lists on NSE and BSE on T+3 — within three working days of issue close — often with a price discovery call auction in the first ten minutes. SEBI reduced this timeline from T+6 to T+3 with effect from December 2023. Exact calendar dates vary by issue.

The whole journey from board approval to listing is roughly twelve months. The part visible to retail investors — the open issue and the wait for listing — is barely a week of that.

Every step is governed by SEBI's ICDR Regulations, which run to a few hundred pages and exist because past IPO frauds taught regulators what to write down.

Who can apply: the three categories

An Indian IPO does not throw all applicants into one bucket. In a typical book-built mainboard IPO, SEBI reserves the issue across three categories, each with its own rules and reservation. Specific issues — OFS-heavy offers, those with employee or shareholder reservation, and SME IPOs — can vary these splits, so always check the RHP.

QIB, or Qualified Institutional Buyers. Mutual funds, insurance companies, foreign portfolio investors, sovereign funds, banks. They get 50 percent of the issue. They are the smart money the company most wants on its register.

NII, or Non-Institutional Investors. Anyone applying above two lakh rupees. Now split into two sub-buckets, with applications between two and ten lakh on one side, and applications above ten lakh on the other. They get 15 percent of the issue.

Retail. Individual investors applying up to two lakh rupees through a single PAN. They get 35 percent of the issue. This is the bucket most readers of this article will apply through.

If any one category is undersubscribed, the unsold portion can flow to the others, subject to SEBI rules. If the retail bucket is oversubscribed five times, only one in five retail applicants gets an allotment.

Up to 60 percent of the QIB share can also be allocated to anchor investors one day before the issue opens. Anchors are large institutions that commit to the IPO in advance, with half their shares locked in for 30 days and the rest for 90 days from listing.

Anchor participation is useful context, not a guarantee. Check three things — who the anchors are (a roster of respected mutual funds reads differently from a list of unfamiliar funds), how much they took, and when their lock-in ends. The 30-day unlock window is a common source of supply that drags a stock down a month after listing.

Price band, lot size and the allotment lottery

An Indian IPO is almost always book-built, which means the company gives a price band rather than a fixed price. A typical band might be ₹120 to ₹126, a five percent range.

Investors bid within that range, and the final issue price, called the cut-off price, gets fixed at the top of the band if demand is strong. Retail applicants usually just tick "cut-off" and accept whatever the final price becomes.

Shares are applied for in lots, not single shares. For a mainboard retail application, one lot is generally sized around the minimum retail application amount (broadly ₹14,000 to ₹15,000 in recent issues). The exact lot size is announced in the RHP and on the exchange's issue page. At a ₹126 upper band, a lot of 118 shares costs roughly ₹14,868, which would be one minimum application.

A retail investor can apply for one to thirteen lots, with the maximum capped at two lakh rupees per PAN. Families often spread the same IPO across the spouse's PAN, a parent's PAN and the applicant's own — each application must, however, be genuine, with its own bank, demat and UPI details. Multiple bids from the same PAN are rejected at the registrar level.

When the issue is oversubscribed in the retail category, SEBI's rule is firm: every valid applicant must be considered for at least one lot before anyone gets two. The rest of the allocation is decided by a computerised lottery run by the registrar.

If retail is subscribed five times, roughly one in five applicants gets exactly one lot, and the rest get none. Applying for thirteen lots when the issue is five times oversubscribed does not improve your odds beyond one. The lottery cares about applicants, not application size.

The 30-minute RHP checklist

Most beginners skip the RHP because it looks like a legal document — three hundred pages of dense text and footnotes. That is exactly why a checklist helps. You do not need to read every page; you need to read the right eight things.

Where retail investors get IPOs wrong

The failures around IPOs are not usually about bad allotment luck. They are about treating the IPO as a guaranteed listing pop rather than as an investment decision.

Mistake 1: Applying because GMP says so. Grey market premium, or GMP, is an unofficial quote of what the share is changing hands for off-market before listing. It is run by a small group of dealers, with no regulation and no transparency.

A high GMP gets resold to retail as a signal. In practice, GMP and listing day performance have often diverged sharply — on big issues like Paytm in 2021, the pre-listing GMP was wildly optimistic against the eventual listing. Treat it as market gossip, not investment evidence (more in our piece on whether GMP is useful or noise).

Mistake 2: Treating the listing pop as the goal. Many retail investors apply, hope for a 20 to 40 percent listing gain, and sell on day one. When the listing is flat or negative, they hold out of habit, hoping recovery will come.

This is the worst order of operations. The right decision was made before the IPO opened, based on the RHP, valuation and business quality. Selling on a pop is fine if the business does not deserve a long-term position anyway.

Mistake 3: Skipping the RHP. The Red Herring Prospectus has every fact the regulator could force the company to disclose, including risk factors, pending litigation, the anchor investor list, promoter shareholding and the use of proceeds.

Most retail investors apply without reading any of it. The minimum to read is the risk factors section, the business overview and the use of proceeds page. Half an hour of reading separates an investor from a participant.

Mistake 4: Maxing out the application to "get more shares". Applying for thirteen lots instead of one in an oversubscribed retail bucket does not improve your odds. It only blocks more of your money for a week.

The smarter play is to apply for one lot through each PAN in the family, since the lottery treats each PAN as a separate applicant. Same total commitment, much higher probability of at least one allotment.