IPO Process in India

Last Updated: 30 Sep 2025

Taking a private company public through an Initial Public Offering (IPO) is a complex journey involving multiple steps. In India, this transition goes beyond just raising funds. It’s a major milestone that opens the door to significant growth opportunities. By going public, companies can gain access to capital markets, while investors get a chance to become part of the company’s future.However, the IPO process in India is far from straightforward. It requires meticulous planning, strict compliance with regulations, and a deep understanding of market dynamics. Whether you’re a business preparing to list or an investor eyeing upcoming IPOs, understanding how Indian companies navigate this transformation is essential. Read below the key stages and strategies a company needs to work for a successful stock market debut.

What Is an IPO?

An Initial Public Offering (IPO) is the process through which a private company offers its shares to the public for the first time, becoming publicly traded on a stock exchange. It enables companies to generate funds to grow their business, pay off loans, or finance a new project by issuing stock to shareholders. For investors, it’s a chance to buy some shares and benefit from the company’s growth. The IPO is symbolic of growth and transparency and remains a critical juncture in a company’s lifecycle.

Advantages and Disadvantages of an IPO

Advantages of an IPO

1. Access to Capital: IPOs allow companies to access substantial funds through the public sale of shares, enabling expansion into new markets, debt repayment, further groundbreaking research, and other strategic aims.
2. Enhanced Credibility and Trust: Listing on a major stock exchange significantly improves a company’s image, fostering reliability among all stakeholders, from customers and partners to investors.
3. Liquidity for Early Backers: An IPO provides liquidity to existing shareholders, founders, and initial investors by allowing them to convert their ownership stakes into cash through share sales if desired.
4. Recruiting Top Performers: Public firms can use stock options to attract and keep exceptional employees, a major benefit in today’s competitive landscape.
5. Growth via New Avenues: Access to public funding sources equips companies to pursue strategic acquisitions, enter emerging sectors, and rapidly scale regional operations.
6. Increased Valuation: Companies trading on exchanges often command higher overall valuations thanks to marketplace belief and strong investor enthusiasm.

Disadvantages of an IPO

1. High Costs: IPOs involve significant expenses, including underwriting fees, legal costs, compliance charges, and marketing efforts. These can strain smaller companies.
2. Regulatory Burden: Public companies must comply with strict regulations, such as regular financial disclosures and audits, which can be time-consuming and expensive.
3. Loss of Control: Going public dilutes ownership, reducing the control of original shareholders. Decisions may now require board and shareholder approval.
4. Market Pressure: Public companies face immense pressure to deliver consistent quarterly performance, potentially prioritizing short-term gains over long-term strategy.
5. Risk of Volatility: Stock prices can be volatile, influenced by market trends, economic conditions, and investor sentiment, impacting the company’s valuation.
6. Confidentiality Concerns: Public companies must disclose sensitive financial and operational details, which competitors can exploit.

Types of IPO

When a company decides to go public, it can choose between two primary types of Initial Public Offerings (IPOs): Fixed Price Offering and Book Building Offering. Each type caters to different investor preferences and market conditions.

Fixed Price Offering

In a fixed-price offering, the company establishes a single specific price at which shares will be accessible to the public. This figure is revealed ahead of time in documentation. Buyers know precisely what each share will cost before applying. Demand is only gauged once the period for bids has ended. While straightforward and clear, this method risks pricing inaccuracies for the company since the established price may fail to fully mirror marketplace appetite.

Book Building Offering

A Book Building IPO involves stipulating a range of prices with a minimum limiting price and maximum ceiling price. Investors place orders within these bounds, specifying the quantity wanted and the price willing to be paid. The final price, known as the cutoff price, is then established depending on demand. This dynamic approach delivers better pricing precision and economic efficiency, making it the more popular selection.

Eligibility Criteria for Companies to Launch an IPO

Launching an Initial Public Offering (IPO) is a significant milestone for a company. It enables them to have capital collection among people and be listed on one of the stock markets. In order to bring in transparency and to protect the investors, the Securities and Exchange Board of India (SEBI) has stipulated certain limits. Which are:

• Must be a public limited company under the Companies Act.
• Should have at least 3 years of operational track record.
• Minimum ₹3 crore net tangible assets in each of the past 3 years.
• Minimum ₹1 crore net worth in each of the past 3 years.
• Should have generated an average pre-tax profit of ₹15 crore in the last 3 years, if the company is
• applying for the main board IPO.
• The issue size should not be more than 5 times the company’s net worth unless using the QIB route.
• At least 1,000 public shareholders are required post-issue.
• Must have audited financial statements for the last 3 years.
• Promoters must contribute at least 20% of post-issue capital and lock it in for 3 years.
• No record of default or regulatory violations.
• Must have a functioning website with company and investor details.
• Must appoint SEBI-registered merchant bankers and other intermediaries

Understanding The Need For IPO Process

During the IPO application process, a company can change itself from a privately-held entity to a publicly-traded entity through the process of Initial Public Offering (IPO). Typically, companies offer IPO to raise money and get access to liquidity by offering their stocks/shares to the public. Companies have to abide by the IPO process in India, as stipulated by stock exchanges, before their shares are eligible to be publicly traded. This process is often complicated and long-drawn.

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What are the Steps for the IPO Allotment Process?

Step 1: Hiring Of An Underwriter Or Investment Bank

To start the initial public offering process, the company will take the help of financial experts, like investment banks. The underwriters assure the company about the capital being raised and act as intermediaries between the company and its investors. The experts will also study the crucial financial parameters of the company and sign an underwriting agreement. The underwriting agreement will usually have the following components:

• Details of the deal
• Amount to be raised
• Details of securities being issued

Step 2: Registration For IPO

This IPO step involves the preparation of a registration statement along with the draft prospectus, also known as Red Herring Prospectus (RHP). Submission of RHP is mandatory, as per the Companies Act. This document comprises all the compulsory disclosures as per the SEBI and Companies Act. Here’s a look at the key components of RHP:

• Definitions: It contains the definitions of the industry-specific terms.
• Risk Factors: This section discloses the possibilities that could impact a company’s finances.
• Use of Proceeds: This section discloses how the money raised from investors will be used.
• Industry Description: This section details the working of the company in the overall industry segment. For instance, if the company belongs to the IT segment, the section will provide forecasts and predictions about the segment.
• Business Description: This section will detail the core business activities of the company.
• Management: This section provides information about key management personnel.
• Financial Description: This section comprises financial statements along with the auditor’s report.
• Legal and Other Information: This section details the litigation against the company along with miscellaneous information.

This document has to be submitted to the registrar of companies, three days before the offer opens to the public for bidding. Alongside, the submitted registration statement has to be compliant with the SEC rules. Post-submission, the company can make an application for an IPO to SEBI.

Step 3: Verification by SEBI:

Market regulator, SEBI then verifies the disclosure of facts by the company. If the application is approved, the company can announce a date for its IPO.

Step 4: Making An Application To The Stock Exchange

The company now has to make an application to the stock exchange for floating its initial issue.

Step 5: Creating a Buzz By Roadshows

Before an IPO opens to the public, the company endeavors to create a buzz in the market by roadshows. Over a period of two weeks, the executives and staff of the company will advertise the impending IPO across the country. This is basically a marketing and advertising tactic to attract potential investors. The key highlights of the company are shared with various people, including business analysts and fund managers. The executives adopt various user-friendly measures, like Question and Answer sessions, multimedia presentations, group meetings, online virtual roadshows, and so on.

Step 6: Pricing of IPO

The company can now initiate pricing of IPO either through Fixed Price IPO or by Book Binding Offering. In the case of Fixed Price Offering, the price of the company’s stocks is announced in advance. In the event of Book Binding Offering, a price range of 20% is announced, following which investors can place their bids within the price bracket. For the bidding process, the investors have to place their bids as per the company’s quoted Lot price, which is the minimum number of shares to be purchased. Alongside, the company also provides for IPO Floor Price, which is the minimum bid price and IPO Cap Price, which is the highest bidding price. The booking is typically open from three to five working days and investors can avail the opportunity of revising their bids within the stipulated time. After completion of the bidding process, the company will determine the Cut-Off price, which is the final price at which the issue will be sold.

Step 7: Allotment of Shares

Once the IPO price is finalised, the company along with the underwriters will determine the number of shares to be allotted to each investor. In the case of over-subscription, partial allotments will be made. The IPO stocks are usually allotted to the bidders within 10 working days of the last bidding date.

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Important Documents in the IPO Process

Here is a list of IPO filing requirements:

• Draft Red Herring Prospectus (DRHP)
• Red Herring Prospectus (RHP)
• Prospectus
• SEBI Observation Letter
• Audited Financial Statements 
• Due Diligence Report 
• Board Resolution for IPO 
• Shareholder Resolution
• Listing Agreement 

There might be fewer or more documents required as per the nature of the IPO.

IPO Timeline Overview 

Here is the timeline of the IPO presented in a tabular format:

Stage	Activity	Approximate Timeframe
Planning & Preparation	Appoint merchant bankers, legal advisors	2–4 weeks
Due Diligence & Drafting	Prepare Draft Red Herring Prospectus (DRHP)	3–6 weeks
Filing with SEBI	Submit DRHP to SEBI for review	Day 0
SEBI Review & Comments	SEBI reviews and gives observations	4–6 weeks
RHP Finalization	Update RHP and file with Registrar of Companies	1–2 weeks after SEBI approval
Roadshows & Marketing	Promote IPO to investors	1–2 weeks
IPO Opens	Investors apply for shares	3–5 days
IPO Closes	Last day to submit bids	End of IPO window
Basis of Allotment	Shares allotted to applicants	Within 6 working days of close
Listing on the Stock Exchange	Shares listed and begin trading	6–10 working days after close

Conclusion

Now that you know the IPO process steps and its importance, you can make informed decisions to invest in IPOs. Also, have a look at Indiainfoline upcoming IPO calendar to aid your understanding on IPO. To make prudent investment decisions, you will be invariably required to do a lot of legwork.

This includes selecting a trusted and reliable financial partner. You must select a stockbroking firm providing multiple benefits such as smooth trading platforms, an all-in-one account to trade in all investment options, zero Demat account opening and AMC charges, award-winning research, and so on. These help with the IPO subscription procedure for investors.

Frequently Asked Questions

What do you mean by an IPO?

An IPO, or Initial Public Offering, is when a private company decides to offer its shares to the public for the first time. This transition allows the company to raise capital from investors and become publicly traded on a stock exchange.

How does an IPO work?

An IPO involves appointing underwriters, filing regulatory documents, determining a share price, and offering shares to the public. After the IPO, the company is listed on a stock exchange, allowing investors to buy and sell its shares.

Is IPO profitable?

An IPO can be profitable, offering early investors and shareholders a chance to benefit from price appreciation. However, returns depend on market conditions, company performance, and investor sentiment.

Is an IPO a good investment?

Investing in an IPO can be rewarding if the company has strong growth potential. However, it carries risks like volatility and uncertainty, requiring careful analysis of the company’s fundamentals and industry trends.

How to sell IPO shares?

IPO shares can be sold through a trading account once the company is listed on a stock exchange. Investors can sell their shares at market price or set a preferred selling price.