If you are new to investing, the term IPO might seem complex. Many investors hear of “companies going public” and, in general, are not sure of exactly what is happening. In this blog, we aim to bring to you the entire IPO process and explain each step of the way to you in a simple manner.
An IPO, or Initial Public Offering, is when a private company puts its stock for sale to the public for the first time. Through this, they can raise capital from the public to expand their business, clear any debt, or even start another business. Once the company has done this, they get listed on the stock exchange market, and people can buy or sell their shares based on the stock market.
Let us now understand the journey step by step.
Understanding the IPO application process
To initiate the process, you will require a few things to be in place, such as a Demat account, a trading account, and a bank account for retail investors. Without this, you cannot apply for an IPO.
When a company announces its IPO, it provides details such as:
● Issue price or price band
● Lot size (minimum number of shares you can apply for)
● Opening and closing dates
● Total issue size
You can apply through the trading platform or net banking using the ASBA facility. ASBA stands for Application Supported by Blocked Amount. In this facility, the amount is blocked but not deducted. It will be deducted only if the allotment happens.
While applying, you choose:
● The number of lots
● The bid price (which is typically the cut-off price for retail investors).
Once submitted, your application gets recorded. This marks the completion of the first stage in the IPO journey.
IPO timeline: what happens after you apply?
“What happens after I apply?” is a question often posed by newbies. Here is the general IPO timeline:
Day 1–3: IPO Open for Subscription
The IPO window remains open for three working days. During this time, new investors can apply. There is an update on a day-to-day basis showing the number of times the issue has been subscribed to in various categories.
Day 4–5: Basis of Allotment Finalised
After the issue closure, the registrar finalises the basis of allotment. The allotment of shares is done through a lottery system for retail investors.
Refunds and Fund Release
In case you are not entitled to any share of stocks, your blocked bank funds are released. When you are allowed partial allotment, only the requisite funds are deducted.
Listing Day
Finally, the shares are credited to your Demat account. The company gets listed on the stock exchanges like NSE and/or BSE. On the date of listing, the share price at opening may be higher or lower than the issue price.
Allotment process and tracking an upcoming IPO
While applying for the IPO, it is essential for the investors to select who will receive shares and how the shares will be allocated. This is known as the IPO allotment process. This is done by the Registrar to the Issue.
There are two main situations:
If IPO is not oversubscribed:
When there are sufficient shares available, all valid applicants are given their full number of lots applied for.
If IPO is oversubscribed:
If the applications exceed the shares available, shares are allotted on a computerised lottery basis. All qualified applicants are given equal opportunity.
Once your allotment is finalised, you can verify your IPO allotment status on:
● The registrar’s official website
● Your trading platform
● Stock exchange website
If you are going to apply for an upcoming IPO, make sure to carefully check the following key details:
● Company fundamentals
● Revenue and profit trends
● Purpose of raising capital
● Valuation against competitors
● Risk factors discussed in the prospectus
Conclusion
The process involved in an IPO looks somewhat tricky at first glance; however, it is quite systematic and transparent. First, you make an application using ASBA, and then you have to wait for a period of subscription to lapse. Then, the registrar finalises the allotment, the funds, and the listing.
For beginner professionals, the key is to stay informed, keep an eye on the IPO timeline, and thoughtfully assess each IPO. Trading or investing is not about quick profits; it is about smart growth of capital.
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