What actually happens in an Indian IPO

An initial public offering does one or both of two things. It raises new money for the company — a "fresh issue", where newly created shares are sold and the proceeds land on the company's balance sheet. And it lets existing shareholders sell some of what they own — an "offer for sale", where no new shares are created and the money goes to the people selling, not to the business.

That distinction is the single most under-read line in any prospectus. A company raising ₹2,000 crore of fresh capital to build factories is doing something different from one whose founders and early investors are selling ₹2,000 crore of their own stock. Both are legitimate. They are not the same investment.

1. 1

   DRHP — the draft red herring prospectus

   Filed with SEBI, usually six to twelve months ahead. It carries the business description, the financials, the risk factors and the peer group, but no price and no dates. SEBI reviews it and issues observations; the company responds. Some issues die here and never come back.

2. 2

   SEBI observations

   The regulator's sign-off. It is explicitly not an endorsement of the issue or its price — SEBI reviews disclosure, not merit. The approval is valid for twelve months, which is why a company can sit on it and pick its moment.

3. 3

   RHP — the red herring prospectus

   Filed days before the issue opens. This one has the price band, the dates, the lot size and the final shareholding. It is the document that actually matters, and it is the one every figure on this site is reconciled against.

4. 4

   Anchor allocation

   One working day before bidding opens, institutions bid for an anchor portion out of the QIB quota. Who turns up, and at what price, is the first real signal of institutional appetite — and anchors are locked in for 30 and 90 days, so they cannot flip on day one.

5. 5

   The book opens

   Bidding runs for a minimum of three working days. Retail, non-institutional and qualified institutional buyers all bid into separate pots with separate rules.

The net offer is carved into reserved categories before a single bid is placed, and the split depends on whether the company is profitable.

Those are percentages of the net offer, which is what is left after any employee or shareholder reservation is carved out. Every issue page on this site shows the actual split for that issue rather than assuming the standard one.

Almost all mainboard issues are book-built. The company and its lead managers publish a band — say ₹143 to ₹151 — and bidders say how many shares they want and at what price inside it. At the close, the final "cut-off" price is discovered from where the demand actually sits.

Retail bidders can simply tick "cut-off", which means accepting whatever price is discovered. Bidding below the eventual cut-off gets the application rejected at allotment, which is the most common self-inflicted way to miss out.

A minority of issues, mostly on the SME board, are fixed-price: one price, no band, no discovery.

Allotment is finalised with the registrar a day or two after the book closes. Unsuccessful applications have their blocked funds released; successful ones have shares credited to their demat account. Listing follows, currently on a T+3 timetable from the close — about three working days.

The listing price is set by supply and demand on the day. It is not set by the fundamentals, not by the grey market, and not by anything anyone can reliably forecast. A good business can list flat and a mediocre one can list up 60%.