What is an IPO?
An IPO, or initial public offering, is the first time a company sells its shares to the public. After the IPO, its shares trade on the stock exchanges like any other listed stock.
Why companies go public
A company lists for two main reasons: to raise new money for the business, or to let existing shareholders sell part of their stake. Many IPOs do both.
Listing also gives the company a market price for its shares, which helps it raise money later and reward employees with shares.
How an IPO is sold
Most Indian IPOs are book-built. The company sets a price band, say ₹100 to ₹105, and investors bid within it for three working days. The final price is set after bidding closes, usually at the top of the band when demand is strong.
You bid in lots, a fixed minimum number of shares. If the lot is 12 shares and the top of the band is ₹105, one lot costs ₹1,260.
Who can bid
The issue is split between big institutions (QIBs), wealthy individuals and companies (NIIs), and retail investors who bid up to ₹2 lakh. Some issues also reserve shares for employees or for shareholders of the parent company.
Retail investors usually get at least 35% of the shares on offer, so ordinary investors aren’t squeezed out by large funds.
See it in a real issue
Jio Platforms is selling new shares only. Every rupee raised goes to the company, mainly to repay debt, and Reliance Industries, the promoter, sells none of its stake.
An IPO has a price band of ₹200–₹210 and a lot of 70 shares. What is the most one retail lot can cost?
- ₹14,000
- ₹14,700
- ₹210
Show the answer
₹14,700. 70 shares × ₹210 (the top of the band) = ₹14,700. Retail investors usually bid at the top of the band, at the “cut-off” price, to avoid being left out.
Common questions
What is the full form of IPO?
IPO stands for initial public offering: the first time a company offers its shares to the public.
Is it safe to invest in an IPO?
An IPO is as risky as any stock, sometimes more, because the company has no trading history yet. Read the prospectus, judge the business and the price, and only invest money you can leave invested.
How do I apply for an IPO in India?
Through your broker’s app using UPI, or through your bank’s net banking using ASBA. You need a demat account, and the money is only blocked, not debited, until shares are allotted.
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