Seasonal IPOs can attract new investors with all of the excitement of current events in the stock market, from news coverage and financial conversations, to market research.
For many Indian investors, an IPO represents their first experience with the primary market. You have likely overheard conversations around allotment status and listing gains, or looked at indicators such as SGX Nifty, as you try to determine if a public offering will be attractive to you.
At first glance, the IPO process may appear to be very technical in nature, as it is comprised of multiple stages and a number of regulations and terminologies related to finance. However, once you have a better understanding of how companies are allowed to enter the stock market and how the shares are distributed to the public, the entire process will make much more sense to you.
It is important to understand the IPO process fully, since each public issue represents both an opportunity and a risk. Depending on the performance of the business or company, valuation, and overall market conditions, some IPOs will receive more demand from investors than others.
This is a simple and straightforward guide to the IPO process designed to assist new investors entering the primary market.
What is an IPO?
An IPO, or Initial Public Offering, refers to the process through which a private company offers its shares to the public for the first time. After completing the IPO process, the company becomes publicly listed on recognised stock exchanges.
Companies generally launch IPOs to raise funds for:
- Business expansion
- Debt repayment
- Infrastructure development
- Operational growth
- Working capital requirements
For investors, IPO participation provides an opportunity to access companies before public trading begins within the secondary market.
Difference between primary market and secondary market
Understanding the distinction between the primary and secondary market helps investors understand where IPOs fit within the financial system.
| Feature | Primary Market | Secondary Market |
| Main Activity | New share issuance | Trading existing shares |
| Share Source | Directly from company | From other investors |
| Example | IPO subscription | Stock exchange trading |
| Capital Recipient | Company receives funds | Sellers receive funds |
| Market Stage | Initial offering | Post-listing transactions |
An IPO belongs to the primary market because the company issues shares directly to public investors.
Why companies launch IPOs
Companies enter public markets for several strategic and financial reasons. Public listing often supports long-term business growth and market visibility.
Business expansion
Companies may raise capital through IPOs to support expansion plans, operational scaling, infrastructureinvestment, technology upgrades, or entry into new business segments and geographical markets.
Debt reduction
Some businesses use IPO proceeds to reduce existing liabilities and improve financial stability, which may strengthen balance sheet positioning and reduce long-term borrowing pressure.
Improved public visibility
Publicly listed companies often receive greater investor attention, market visibility, and brand recognition within financial and business communities.
Liquidity for existing stakeholders
An IPO may allow promoters, early investors, or private stakeholders to partially monetise their holdings through regulated public market participation.
Main participants in the IPO process
Several entities participate throughout the IPO process to ensure operational coordination, investor communication, and regulatory compliance.
Issuing company
The company prepares financial disclosures, business information, operational details, and offer-related documents before opening the IPO for public participation.
Merchant bankers
Merchant bankers manage IPO structuring, pricing strategy, regulatory coordination, marketing, and investor communication during the public issue process.
Registrar to the issue
The registrar handles investor applications, allotment calculations, refund processing, and investor record management throughout the IPO timeline.
Stock exchanges
Recognised exchanges such as National Stock Exchange and Bombay Stock Exchange facilitate listing and post-IPO public trading.
Market regulators
Securities and Exchange Board of India oversees IPO regulations, disclosure standards, investor protection measures, and market compliance frameworks.
Types of IPOs
Companies may structure public issues differently depending on pricing methods and investor participation frameworks.
Fixed price IPO
Under this method, the company declares a fixed issue price before opening the IPO for public subscription.
Book building IPO
In this process, investors place bids within a specified price band. The final issue price depends on demand received during the subscription period.
Book-building remains one of the more commonly used IPO structures in India today.
Step-by-step IPO process
The IPO process follows a structured sequence before shares begin trading publicly on stock exchanges.
Appointment of merchant bankers
The company appoints merchant bankers and financial advisors to manage issue structuring, compliance procedures, documentation, and public offering coordination.
Preparation of draft prospectus
The company prepares a Draft Red Herring Prospectus containing financial details, operational information, risk disclosures, and IPO objectives for regulatory review.
Regulatory approval
SEBI reviews the submitted prospectus and may request additional clarifications or disclosures before approving the public issue.
IPO price determination
The company decides pricing either through a fixed-price method or through a book-building process depending on investor demand and valuation strategy.
IPO subscription period
Eligible investors apply during the subscription window through authorised banking systems and stock market platforms using ASBA-supported application procedures.
Share allotment process
After subscription closure, shares are allotted based on investor demand, subscription category, and applicable allocation mechanisms.
Refund and fund release
Blocked funds linked with unsuccessful applications or partial allotments get released according to settlement procedures and banking timelines.
Listing on stock exchange
After allotment completion, shares become publicly listed and begin trading within the secondary market on recognised stock exchanges.
Understanding ASBA in IPO applications
ASBA, or Application Supported by Blocked Amount, has simplified IPO application procedures significantly for retail investors.
Funds remain in investor bank account
Instead of transferring money immediately, the application amount remains blocked within the investor’s bank account until allotment processing completes successfully.
Operational convenience improves
ASBA reduces unnecessary fund transfers and simplifies the IPO application process for retail participants entering primary markets.
Faster refund handling
Because funds remain blocked instead of fully debited initially, unsuccessful applications usually experience smoother and faster fund release procedures.
Things investors should check before applying for an IPO
Applying for an IPO should involve structured research instead of depending entirely on market excitement or speculation.
Company financial performance
Reviewing revenue growth, profitability, liabilities, and operational performance may help investors understand business stability and financial health more realistically.
Business model understanding
Understanding how the company earns revenue and operates within its industry provides better clarity regarding long-term sustainability and market positioning.
Risk disclosures
Every IPO prospectus contains detailed risk factors explaining operational, financial, legal, and industry-related uncertainties affecting the company.
Valuation assessment
Comparing IPO pricing with existing listed companies within the same sector may help investors evaluate whether valuations appear aggressive or moderate.
Market sentiment analysis
Some investors monitor broader market sentiment indicators such as SGX Nifty to understand overnight global market direction and overall investor mood.
Role of SGX Nifty during IPO discussions
SGX Nifty often appears in market conversations because it reflects offshore derivative activity connected with Indian equity market sentiment.
Although SGX Nifty does not directly determine IPO performance, some investors observe it to understand broader market direction before listing sessions or important market openings.
Positive global market sentiment may influence short-term investor confidence during active IPO periods. However, long-term IPO performance generally depends more on company fundamentals and financial performance than short-term sentiment alone.
Risks involved in IPO investments
IPO investments may involve market-related risks that investors should understand carefully before participating in public issues.
- Listing Volatility:
Newly listed shares sometimes experience sharp price fluctuations during early trading sessions because of changing investor demand, market sentiment, and speculative participation within the secondary market. - Limited Public Trading History:
Unlike established listed companies, IPO-bound businesses may have limited publicly available market history, making future trading behaviour comparatively difficult for investors to evaluate initially. - Market Condition Risk:
Weak overall market conditions may affect listing performance even if the company demonstrates stable business fundamentals and financial performance before public listing. - Valuation Risk:
Certain IPOs may enter markets at aggressive valuations because of strong demand, sector popularity, or heightened investor enthusiasm during subscription periods.
Common mistakes beginners should avoid
Many first-time investors make emotional or rushed decisions during highly discussed IPO launches.
- Applying Without Reading Prospectus:
Skipping important disclosures within the prospectus may prevent investors from understanding business risks, operational concerns, financial health, and valuation-related details properly before applying. - Depending Entirely On Grey Market Discussions:
Unofficial market speculation and grey market activity do not guarantee actual listing performance or long-term business sustainability after public market entry. - Ignoring Company Fundamentals:
Strong subscription numbers alone do not automatically indicate financial strength, sustainable earnings, or future business stability for the issuing company. - Investing Emotionally During Hype Cycles:
Fear of missing out often influences investors during highly publicised IPO launches, leading to decisions based more on excitement than structured financial understanding.
Conclusion
The IPO process allows companies to raise public capital while giving investors access to businesses entering stock markets for the first time. However, understanding how IPOs work remains important before participating in primary market offerings. Investors can also explore financial services and market-related insights from companies such as Bajaj Finance to strengthen their understanding of investment opportunities.
Reviewing company fundamentals, valuation, market conditions, and operational risks may help investors approach IPO participation more realistically. While indicators such as SGX Nifty sometimes influence short-term sentiment, informed investment decisions usually depend more on careful research and disciplined financial understanding.
