by 5paisa Research Team Last Updated: 2023-04-25T14:28:58+05:30


Initial Public Offering is a significant event in a company's journey towards growth and expansion. It is an opportunity for a company to raise funds and expand its operations by issuing shares to the public. The process of IPO in India is governed by the Securities and Exchange Board of India (SEBI), and it involves several steps and regulations that companies must comply with. Understanding the ipo process steps is crucial for companies planning to go public, investors looking to invest in IPOs, and professionals in the finance industry. 

In this blog, we will discuss the step-by-step initial public offering process, covering everything from the preparation of the prospectus to the final listing on the stock exchange.


Understanding The Need For IPO Process

The initial public offering process is a crucial step for companies seeking to raise capital and expand their business operations. Going public can provide access to a larger pool of potential investors, including institutional investors, mutual funds, and individual investors. This can help the company raise significant amounts of capital and provide liquidity for existing shareholders, such as private investors, allowing them to fully realise gains from their investment.

Furthermore, an IPO can increase a company's visibility and credibility, which can help attract more customers, partners, and talented employees. Going public can also create a platform for future growth and expansion, which is beneficial for both the company and its investors.

While companies must meet regulatory requirements and reporting obligations once they go public, the advantages of accessing capital markets and increasing visibility can be significant.


What Is The Process Of IPO In India

The process of IPO in India can be complex involving several regulatory requirements and legal procedures. To help you understand this process, let's break down the steps involved in launching an IPO in India.

Step 1: Hire An Investment Bank 

The first step in the process of IPO in India is to hire an investment bank or a team of underwriters. The company typically works with more than one bank to get the best possible deal. The role of the underwriters is to provide guidance and assistance in preparing for the IPO. They analyse the company's financial situation, assets and liabilities, and help the company to determine the amount of capital to be raised from the IPO. An underwriting agreement is then signed, which outlines the details of the deal, including the amount to be raised and the securities to be issued.

The underwriters also provide their expertise in pricing the shares to be issued, and the type of securities that will be offered. They also help the company to determine the optimal time to launch the IPO. However, the underwriters assume responsibility for raising the capital, they do not bear all the risks associated with the process.

Step 2: Prepare Rhp And Register With The Sebi

After hiring an investment bank, the next step in the initial public offering process is to prepare the Red Herring Prospectus (RHP) and register with SEBI. The RHP is a preliminary prospectus that contains all the necessary information about the company, including financial data, management details, business plans, and risk reports.  It is called the Red Herring Prospectus because the initial details of the prospectus contains a warning that it is not a final prospectus, and certain details may change.

The RHP must be filed with the SEBI along with the registration statement as per the Companies Act. The registration statement includes details of the securities that will be issued, the amount that will be raised, and how the funds will be utilised. The RHP must also declare how the business will use the funds it will raise from the IPO.

After submitting the registration statement and RHP to the local Registrar of Companies (ROC) at least three days before the IPO is opened to the public for bidding, the company can make an application for the IPO to the SEBI. The SEBI scrutinises the registration statement and RHP to make sure that the business has disclosed every detail that a potential investor should know. If the SEBI finds any discrepancies, it will send back the documents with comments, and the company will have to work on them and file for registration again. 

Step 3: Application To Stock Exchange 

Once the company has prepared its registration statement and the RHP has been approved by the SEBI, the next step in the process of ipo  is to apply for listing on the stock exchange. The company must decide on the stock exchange where it wants to list its shares, and then make an application for the IPO.

The application for listing on the stock exchange is a detailed process that involves a lot of paperwork. The company must submit various documents to the stock exchange, including copies of the prospectus, the registration statement, and any other relevant documents. The stock exchange will then review the application and decide whether or not to approve it.

Step 4: Go On A Roadshow 

Before the IPO goes public, the company will embark on a roadshow, which usually lasts around two weeks. During this time, the executives of the company will travel around the country to major financial centres, meeting with potential investors, mostly QIBs, to market the upcoming IPO. The objective of this marketing activity in the process of ipo is to create positive interest in the IPO and to present the facts and figures that support the company's potential for growth and profitability.

Roadshows usually involve presentations to institutional investors, such as mutual funds and pension funds, as well as to high net worth individuals. During this stage, the company may also offer bigger organisations the opportunity to purchase the company stocks at a price set before the stock goes public. This allows the company to raise additional capital and establish valuable relationships with key investors.

Step 5: IPO Is Priced 

After concluding the roadshow, the company needs to decide on the offering price for its shares to the public, which is a crucial factor that can affect the success of the offering to a great extent. The company has two methods at its disposal to determine the IPO price:

●    Fixed Price Method

In this method, both the company and the underwriter work together to fix a price for their shares. The company will take into account its liabilities, the target capital to be raised, and the demand for stocks, among other factors, to come up with a price that is attractive to potential investors.

    Book Building Method

The underwriter and the company will establish a range of prices in which potential investors can submit their bids. The final price is dependent on the demand for the shares, the bidding received, and the target capital to be achieved. The company is allowed to set the cap price at 20% higher than the floor price. Books are normally open for three days during which bidders can revise their bids. Issuers often prefer book-building as it allows better price discovery. The final price of the issue is called the Cut-off Price.

Step 6: Available To The Public 

Once the company has completed the roadshow and the pricing of shares, it is time to make the IPO available to the public. The company announces the availability of IPO forms on a specified date, and these forms can be obtained from designated banks or brokers. Interested investors fill in the details in the form and submit it along with a cheque or electronically. The SEBI has set a period of five working days for the availability of IPO forms to the public.

The timing of making the IPO available to the public is a critical decision for the company. It is essential to choose the right time to offer shares to maximise earnings from the sale. Some companies may have their own economic timeline for going public, and they may avoid entering the market at the same time as giant companies, fearing that the larger companies may steal the limelight.

Once the IPO bidding is closed, the company must submit the final prospectus to both the Registrar of Companies (ROC) and SEBI. The prospectus is required to include both the amount of shares being allocated and the final issue price at which the sale is concluded.

Step 7: Going Through With The IPO

Once the IPO price has been determined, the stakeholders and underwriters collaborate to allocate the number of shares that each investor will receive. Generally, investors will receive full securities unless they are oversubscribed. The shares are then credited to their demat account. In case the shares are oversubscribed, the refund is given to the investor. It is crucial for the business to ensure that its internal investors do not trade and manipulate the stock prices of the IPO.

The allotment of IPO shares to bidders takes place within ten days from the final date of bidding. In case of oversubscription, the shares are assigned proportionately among the applicants. For example, if the oversubscription is five times the allocated number of shares, an application for ten lakh shares will be granted only two lakh shares. Following the allotment of securities, the Company's IPO will commence trading in the stock market. It is imperative to adhere to SEBI regulations when conducting the allotment process.



Although the process of an initial public offering (IPO) in India may be intricate and protracted, it presents a chance for firms to procure funds and for investors to acquire a share in the company. Prior to going public, it is crucial for companies to meticulously assess their financials, business strategies, and market conditions. Similarly, investors should conduct their own research and perform due diligence on the company's future prospects before investing. When executed with careful planning and implementation, an IPO can serve as a beneficial instrument for growth and investment opportunities in the Indian market.

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More About IPO

Frequently Asked Questions

To launch an IPO in India, a company must meet certain eligibility criteria. These requirements include having been in existence for at least three years, having made profits in at least two years, having a minimum net worth of Rs. 3 crores, and having a minimum float of 20%. In addition, specific financial and legal requirements must be fulfilled, such as having financial statements audited by a SEBI-registered Merchant Banker.

In India, the value of shares during an IPO is calculated by dividing the company's valuation by the overall number of shares offered for listing. A company's valuation is determined by a variety of factors, including comparable companies in the same industry, the financial track record of the company and the quality of its management, and the company's growth prospects beyond the IPO.

SEBI plays a crucial role in regulating and promoting entities involved in the IPO process, including issuers of securities. SEBI ensures that the process of IPO in India is smooth and fair for all parties involved.

The IPO process in India generally takes 4-6 months and involves filing a draft prospectus for approval by SEBI.

In recent years, SEBI has implemented new rules and regulations to make the IPO process more transparent and efficient. One such rule is that existing shareholders owning more than 20% of pre-issue cannot sell more than 50% of their holding, while shareholders with less than 20% pre-issue holding cannot sell more than 10% of their holding. These changes aim to protect the interests of both investors and companies involved in the IPO process.