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Get in on the ground floor
An IPO is your chance to invest in a company before it starts trading publicly. India has seen some spectacular IPOs — from Zomato to LIC to Tata Technologies. But not all IPOs are winners. This guide teaches you how to analyze, apply, and decide whether an IPO is worth your money.
What Is an IPO?
IPO stands for Initial Public Offering. It is the first time a private company sells its shares to the general public on a stock exchange. Before an IPO, the company is owned by founders, early investors, and employees. After the IPO, anyone with a Demat account can buy and sell its shares.
IPO Journey: Private → Public
Fresh Issue
Company issues new shares and receives the money directly. Used for expansion, debt repayment, or new projects.
OFS (Offer for Sale)
Existing shareholders sell their shares to the public. Company gets zero money. Promoters are cashing out.
Mixed Issue
Most large IPOs combine both — some fresh issue for the company, some OFS for existing investors. Check the split in the RHP.
Why Companies Go Public
Raise Capital
Fresh issue IPOs raise money for expansion, debt repayment, or new projects. Zomato raised ₹9,375 Cr in its IPO for technology and marketing.
Exit for Early Investors
OFS (Offer for Sale) lets founders, VCs, and PE funds sell their shares to the public and cash out. This is how early investors make returns.
Brand & Credibility
Being a listed company adds credibility, helps attract talent (ESOPs), and gives the brand more visibility. Customers trust listed companies more.
IPO Timeline
IPO Process Timeline
How to Apply for an IPO
Check IPO Details
Review the price band, lot size, issue dates, and company fundamentals. Minimum investment = 1 lot (e.g., Tata Technologies IPO: 1 lot = 10 shares × ₹500 = ₹5,000).
Open Your Broker App
Go to the IPO section in Zerodha (Console → IPO), Groww, or any broker. All SEBI-registered brokers offer IPO application.
Select Category & Lots
Retail investors can apply for up to ₹2 lakh. Select number of lots (1 lot for best allotment chances). Bid at cut-off price for retail.
UPI Mandate (ASBA)
Your application goes through ASBA (Application Supported by Blocked Amount). Money is blocked in your bank account — NOT debited — until allotment. If not allotted, the block is released.
Approve UPI Mandate
You will receive a mandate request on your UPI app (Google Pay, PhonePe, BHIM). Approve within the deadline (usually same day). Without approval, your application is invalid.
Wait for Allotment
Allotment happens 1 working day after bidding closes (T+1). Listing occurs on T+3 (3 working days after issue close). Check on BSE IPO status page or your broker app. If allotted, shares appear in your Demat on listing day.
Grey Market Premium (GMP)
GMP is the unofficial premium at which IPO shares trade in the grey (unofficial) market before listing. It gives an indication of listing day performance, but is NOT reliable.
Understanding GMP
GMP warning
GMP is an unregulated, grey market number. It can change dramatically in hours. Many IPOs with high GMP have listed below expectations, and vice versa. Use GMP as one data point, not as your decision-maker.
How to Analyze an IPO
Financial Health
Is the company profitable? Check revenue growth, profit margins, and debt levels from the RHP (Red Herring Prospectus). Avoid companies with no clear path to profitability.
Valuation
Compare P/E ratio with listed peers. If the IPO P/E is 50x but the industry average is 25x, the stock is priced for perfection. Leave room for upside.
Promoter & Management
Who runs the company? Check promoter holding, track record, and whether promoters are selling heavily in OFS (a red flag if they are exiting entirely).
Industry & Growth
Is the company in a growing sector? A mediocre company in a booming sector can outperform a great company in a dying one.
Use of IPO Proceeds
Where is the money going? "Growth capex" and "debt repayment" are good. "General corporate purposes" and "OFS only" are less exciting.
Subscription Data
Check QIB (institutional) subscription. If QIBs subscribe 10x+, it signals institutional confidence. Retail subscription alone is not a reliable indicator.
SME IPOs vs Mainboard IPOs
| Feature | Mainboard | SME |
|---|---|---|
| Min Issue Size | ₹10 Cr+ | Under ₹25 Cr |
| Min Lot Size | ₹14,000-15,000 | ₹1,00,000+ |
| Listing Platform | NSE/BSE Main | NSE Emerge/BSE SME |
| Liquidity | High | Very Low |
| Risk Level | Moderate | High (many are pump & dump) |
SME IPO warning
While some SME IPOs have given spectacular returns, many are low-quality companies with manipulated subscriptions. The minimum lot size is ₹1 lakh+, liquidity is poor (hard to sell), and information asymmetry is high. Beginners should stick to mainboard IPOs.
Listing Day Strategies
Listing Day Sell (Short-term)
- →Sell on listing if GMP was high and you got allotment
- →Book profit on the first day
- →Works best with strong subscription IPOs
Hold for Long Term
- →If you believe in the company fundamentals
- →Best IPO returns come from multi-year holding
- →Example: Info Edge IPO (2006) — 100x returns
Red Flags in IPOs
Only OFS, No Fresh Issue
If the IPO is 100% OFS, the company gets zero money — promoters are just cashing out. Ask why they want to exit.
Consistent Losses
Many tech IPOs list at premium despite losses. Unless there is a clear profitability path, avoid loss-making companies.
Overvaluation vs Peers
If the IPO P/E is 2-3x the industry average, the listing gains are already priced in. You are buying someone else's profit.
Heavy Debt
If IPO proceeds are mainly for "debt repayment," the company is using your money to fix past mistakes rather than grow.
Low Promoter Holding Post-IPO
If promoters will hold less than 25-30% post-IPO, they may not be fully committed. Skin in the game matters.
Lock-in Period Expiry
After 6-12 months, anchor investors and promoters can sell. This selling pressure often causes a dip. Be aware of lock-in expiry dates.
What to Learn Next
- Financial Ratios — Analyze IPO company fundamentals
- Stock Market Basics — Understand how listed stocks trade
- Demat Account Guide — Set up your account to apply for IPOs
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