Initial Public Offering

An Initial Public Offering (IPO) is the process by which a private company offers its shares to the public for the first time to raise capital. After the IPO, the company is listed on stock exchanges like the NSE and BSE, and retail and institutional investors can buy and sell its shares in the secondary market.

IPOs in India are regulated by the Securities and Exchange Board of India (SEBI). SEBI mandates that companies seeking to go public file a Draft Red Herring Prospectus (DRHP) disclosing their financials, business model, risk factors, and the intended use of the capital they plan to raise. The final offer document is called the Red Herring Prospectus (RHP).

Retail investors apply for IPOs through their Demat account using the ASBA (Application Supported by Blocked Amount) facility. The application amount is blocked in your bank account and only debited upon allotment. UPI-based applications via Google Pay, PhonePe, and Paytm have simplified the process. The minimum application is one lot, and the maximum retail investment is Rs 2 lakh.

DRHP (Draft Red Herring Prospectus) is the preliminary offer document filed with SEBI before the IPO. RHP (Red Herring Prospectus) is the final offer document issued just before the issue opens. GMP (Grey Market Premium) is the unofficial premium at which IPO shares trade in the grey market before listing, and is often used as an informal indicator of pre-listing demand.

When an IPO is oversubscribed, allotment is done on a proportional or lottery basis under SEBI rules. In the retail category, every eligible applicant is typically considered for the minimum lot, and if demand exceeds supply, lots are allotted via a computerised lottery. The remaining quantity is allotted proportionally to qualified institutional buyers and non-institutional investors.