Even when global IPO volumes fell 12% in 2024, 25% of all IPOs worldwide were made in India. With 178 firms making their debut in 2024, India will top the world in IPO volumes. Given the popularity of IPO and interest among investors, it is necessary to understand the IPO process to make informed decisions. Also, get a clear idea of IPO subscription and who is eligible for IPO?
What Is an IPO?
An IPO, or Initial Public Offering, is when a private company decides to go public by offering its shares for sale to the general public for the first time. Before the IPO, the company is usually owned by a few private investors, but after the IPO, anyone (including retail investors) can buy its shares on the stock exchange.
It is a company’s way of raising money from a larger pool of investors and improving liquidity. By selling shares, the company gets funds that it can use to grow its business, expand operations, or even pay off debt.
How Does the IPO Process Work?
Here is a complete IPO process that a company follows when going public:
- Appointing Underwriter: The first step in the long IPO process is hiring underwriters to support the issuer from post-listing support to due diligence during the initial public offering (IPO) process.
- Draft the Prospectus: Due diligence is carried out by the Issuer Company and the underwriter, who also drafts the Draft Red Herring Prospectus (DRHP).
- DRHP Approval from SEBI: SEBI receives the DRHP document for review. After examining the data in the DRHP, SEBI grants the required permissions.
- IPO Application to Exchange: Next, underwriters send the DRHP paperwork and IPO application to the stock exchanges for approval. The exchange verifies the IPO application and grants the business approval in principle.
- Price Determination: The IPO pricing method—fixed-price offering or book-building issue—is decided by the issuer and the underwriters. Prior to the initial public offering (IPO), investors are informed of the price at which shares will be sold and allocated in a fixed-price offering.
- RHP Submission: The Exchange(s) receives a prepared Red Herring Prospectus (RHP). It includes up-to-date information on the business, such as the most recent financial figures.
- Roadshow: The public is informed about the IPO by underwriters in collaboration with the PR & advertising firm.
- IPO Open for Anchor Investor: Anchor investors (if any) may participate in the IPO. A qualified institutional buyer (QIB) who applies for an initial public offering (IPO) under the anchor investor section and makes a bid of at least Rs 10 crore is known as an anchor investor.
- IPO Is Available to the Public: The public can now submit bids for the shares being sold in the initial public offering (IPO). A minimum of three days and a maximum of ten days can pass before an offering is made public.
- IPO Subscription and Shares Allotment: Following the closing of the public offering, the exchanges transfer the application data to the IPO registrar, who manages the allocation.
Who Is Eligible for IPO?
If you are wondering, ‘who is eligible for IPO?‘, here are some criteria that make you eligible for IPO:
- Age: Every investor and trader must be at least 18 years old to qualify for an IPO subscription.
- Demat Account(s): You need to have a demat account to apply for an IPO. A demat account is where your shares and securities will be stored electronically once they’re allotted to you.
- PAN Card: In India, a Permanent Account Number (PAN) card is mandatory to be eligible for an IPO.
- Bank Account: To complete a transaction, a linked bank account is needed.
- KYC Compliance: The Know Your Customer (KYC) procedure needs to be finished.
Conclusion
The IPO process entails following a set procedure to raise money and making its shares available to the general public. IPOs can be a great way to get in early on a company’s growth story, but they do come with risks. Always do your homework and stay informed before making any investment decisions.