Decoding the IPO Listing Process: A Step-by-Step Guide for Investors 

Listen to our Podcast: Grow your wealth and keep it secure.

0:00 / 0:00

An IPO, or initial public offering, is the process of offering shares of a private company to the public for the first time. An IPO can be a great opportunity for investors to participate in the growth and success of a company, and to diversify their portfolio. However, investing in an IPO can also be challenging and risky, as it involves various factors, such as market conditions, valuation, demand, and regulations. Therefore, it is important for investors to understand the IPO listing process, and to follow the steps to apply for an IPO.

What is the IPO Listing Process?

The IPO listing process is the process of preparing, launching, and completing an IPO, which involves several steps and stages. The IPO listing process can be divided into three main phases: pre-IPO, IPO, and post-IPO. Below are the steps involved in each phase of the IPO listing process:

Pre-IPO Phase

The pre-IPO phase is the phase before the IPO is launched, which involves the preparation and planning of the IPO by the company and its advisors. The pre-IPO phase can take several months or even years, depending on the size and complexity of the company and the IPO. The pre-IPO phase consists of the following steps:

  • Step 1: Hire an investment bank: The first step in the pre-IPO phase is to hire an investment bank or a team of underwriters, who will act as the lead managers and advisors for the IPO. The investment bank will help the company to evaluate its financial situation, growth potential, and market opportunity, and to determine the amount and type of securities to be issued, the valuation and pricing of the shares, and the timing and strategy of the IPO. The investment bank will also sign an underwriting agreement with the company, which outlines the details and terms of the IPO, such as the fees, commissions, and responsibilities of the parties involved.
  • Step 2: Conduct due diligence and regulatory filings: The second step in the pre-IPO phase is to conduct due diligence and regulatory filings, which involves the verification and disclosure of the company's information, such as its business model, financial performance, risk factors, industry outlook, and future plans. The company and its advisors will prepare a draft prospectus, also known as a red herring prospectus, which contains all the essential information about the company and the  IPO. The draft prospectus will be submitted to the Securities and Exchange Board of India (SEBI), which is the regulator of the IPO market in India, for approval and registration. The SEBI will review the draft prospectus and may ask for clarifications or modifications, before issuing an observation letter, which indicates the clearance of the IPO.
  • Step 3: Form a syndicate and book-building: The third step in the pre-IPO phase is to form a syndicate and book-building, which involves the formation and coordination of a group of intermediaries, such as brokers, dealers, and distributors, who will help the company and the investment bank to market and sell the shares to the investors. The syndicate will also conduct a book-building process, which is a method of price discovery, where the company and the investment bank will invite bids from the investors, and collect their expressions of interest, such as the number of shares and the price range they are willing to pay. Based on the demand and feedback from the investors, the company and the investment bank will finalise the offer price and the allocation of the shares.

IPO Phase

The IPO phase is the phase when the IPO is launched and completed, which involves the offering and listing of the shares to the public. The IPO phase can take a few days or weeks, depending on the market conditions and the response from the investors. The IPO phase consists of the following steps:

  • Step 4: Marketing and promotion: The fourth step in the IPO phase is to market and promote the IPO, which involves the creation and distribution of the final prospectus, which is the official document that contains all the updated and final information about the company and the IPO. The final prospectus will also include the offer price and the offer period, which are the price and the duration of the IPO, respectively. The company and the investment bank will also conduct a roadshow, which is a series of presentations and meetings with the potential investors, such as institutional investors, mutual funds, and high-net-worth individuals, to showcase the company's strengths and prospects, and to generate interest and demand for the IPO.
  • Step 5: Application and allotment: The fifth step in the IPO phase is to apply and allot the shares, which involves the submission and processing of the applications from the investors, and the allocation and distribution of the shares to the successful applicants. The investors can apply for the IPO through various modes, such as online platforms, brokers, banks, or post offices, by filling an application form and paying the application money. The investors can also choose the category of investors they belong to, such as retail investors, non-institutional investors, or qualified institutional buyers, which have different eligibility criteria and reservation quotas. The company and the investment bank will then process the applications and allot the shares to the investors, based on the availability and the proportion of the shares. The investors will receive a confirmation of the allotment, and the refund of the excess application money, if any.
  • Step 6: Listing and trading: The sixth and final step in the IPO phase is to list and trade the shares, which involves the admission and commencement of the trading of the shares on the stock exchange. The company and the investment bank will complete the necessary formalities and procedures with the stock exchange, such as the listing agreement, the listing fees, and the listing date, which is the date when the shares will start trading on the stock exchange. The company and the investment bank will also conduct a listing ceremony, which is a symbolic event to mark the debut of the company on the stock exchange. The investors can then start buying and selling the shares on the stock exchange, at the prevailing market price, which may be higher or lower than the offer price, depending on the demand and supply of the shares.

Post-IPO Phase

The post-IPO phase is the phase after the IPO is completed, which involves the monitoring and reporting of the performance and activities of the company and its shares. The post-IPO phase can last for several months or years, depending on the company's growth and expansion plans. The post-IPO phase consists of the following steps:

  • Step 7: Stabilisation and lock-up: The seventh step in the post-IPO phase is to stabilise and lock-up the shares, which involves the maintenance and regulation of the price and volume of the shares in the market. The investment bank may act as a stabilising agent, who can buy or sell the shares in the market, to prevent any extreme fluctuations or manipulations of the share price, within a certain period after the IPO, usually 30 days. The company and the investment bank may also impose a lock-up period, which is a restriction on the sale or transfer of the shares by the existing shareholders, such as the promoters, directors, and employees, within a certain period after the IPO, usually 180 days. The stabilisation and lock-up measures can help to protect the interests of the investors, and to ensure a fair and orderly market for the shares.
  • Step 8: Reporting and compliance: The eighth step in the post-IPO phase is to report and comply with the regulations and obligations of the stock exchange and the SEBI, which involve the disclosure and submission of the financial and operational information and updates of the company and its shares. The company has to report its quarterly, half-yearly, and annual financial results, such as its revenue, profit, earnings per share, and cash flow, to the stock exchange and the SEBI, and to the public through its website and the media. The company also has to comply with the corporate governance and disclosure norms, such as the board composition, the audit committee, the shareholder meetings, the dividend policy, and the material events and developments, that may affect the company and its shares. The reporting and compliance measures can help to enhance the transparency and accountability of the company, and to build trust and confidence among the investors.
  • Step 9: Growth and expansion: The ninth and final step in the post-IPO phase is to pursue the growth and expansion plans of the company, which involve the utilisation and allocation of the funds raised from the IPO, and the execution and implementation of the business strategies and objectives of the company. The company has to use the proceeds from the IPO for the purposes stated in the prospectus, such as the repayment of debt, the acquisition of assets, the expansion of operations, the research and development, and the working capital requirements. The company also has to deliver on its promises and expectations, such as the revenue growth, the market share, the customer satisfaction, and the innovation and differentiation, that it has communicated to the investors during the IPO. The growth and expansion measures can help to create value and wealth for the company and its shareholders, and to achieve a successful IPO.

Conclusion

The IPO listing process is a complex and lengthy process, that requires a lot of preparation, planning, and execution, by the company and its advisors. The IPO listing process can also be a rewarding and beneficial process, that can provide access to capital, visibility, and growth, for the company and its investors. Therefore, it is important for investors to understand the IPO listing process, and to follow the steps to apply for an IPO, to make informed and profitable investment decisions.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For Detailed Disclaimers Click Here: https://bit.ly/3Tcsfuc

Share this article: 

Frequently Asked Questions

1. How long does the IPO process take?

Answer Field

The IPO process in India takes around 4 to 6 months including all the steps.

2. How is the IPO price decided in India?

Answer Field

The IPO price is determined either by the book-building method or by the fixed-price IPO method. Underwriters or investment bankers assess investor demand to determine the price.

3. Who controls the IPO process in India?

Answer Field

Security and Exchange Board of India (SEBI) controls the entire IPO process in India.

4. What are the latest changes in the IPO process in India?

Answer Field

SEBI has introduced rules to ensure transparency in IPOs. Shareholders with more than 20% before the issue can only sell 50%, and those with less than 20% can sell up to 10% of their stakes. These regulations protect the interests of investors and companies.

5. What makes a company eligible to launch an IPO?

Answer Field

In India, a company launching an IPO must meet specific criteria, including three years of existence, two years of profits, a net worth of Rs. 3 crore and a minimum float of 20%. In addition, they must meet financial and legal requirements such as audit of financial statements by a SEBI-registered trader.

No Result Found

Read More Blogs

Our Secure Trading Platforms

Level up your stock market experience: Download the Bajaj Broking Mobile App for effortless investing and trading

Bajaj Broking App Download

6.5 Lac+ Users

icon-with-text

4.1 App Rating

icon-with-text

4 Languages

icon-with-text

₹ 3500 Cr MTF Book

icon-with-text