What is an IPO and How Does it Work in India?

An Initial Public Offering (IPO) is the process through which private companies transition to becoming publicly traded entities by offering their securities to the general public. This entails filing draft papers, known as Draft Red Herring Prospectus (DRHP), with SEBI for approval. Once approved, the company files the final Red Herring Prospectus (RHP) along with necessary documents, setting the IPO launch date and providing required information.

Who Determines the Price Band in an IPO?

The price band of an IPO is decided by the IPO lead managers, also known as merchant bankers or syndicate members. After finalization, the content is validated by SEBI through the IPO Prospectus.

Differentiating Between IPO Cut-off Price and Floor Price

In a Book Building Public Issue (IPO), the minimum bid price is termed as the Floor Price, while the cut-off price is the point at which investors agree to acquire shares at the company’s determined price.

Understanding the Difference Between Fresh Issue and Offer for Sale

In a Fresh Issue, new equity shares are issued by the company to raise capital from investors, whereas in Offer for Sale, existing shareholders sell their shares to the public without raising fresh capital.

Who Sets the IPO Dates?

After DRHP approval, the company collaborates with lead managers and merchant bankers to finalize the IPO dates.

Role of IPO Registrar

The IPO registrar facilitates the IPO process, handling tasks such as collecting applications, allocating shares to different investor categories per SEBI guidelines, and managing refunds for non-allotted shares.

Role of IPO Lead Managers

Lead managers oversee various aspects of the IPO process including drafting the prospectus, obtaining SEBI approval, setting the price band and IPO date, and facilitating the company’s listing on the stock market.

Understanding Primary and Secondary Markets

The primary market is where investors purchase shares directly from the issuing company during an IPO, while the secondary market is where listed securities are traded post-IPO.

Explaining the IPO Prospectus Life Cycle

The DRHP is submitted to SEBI by the company seeking to go public, detailing company information. Upon SEBI approval, it transforms into the Offer Document, then into the Red Herring Prospectus, which incorporates specific details like issue size and price band.

Understanding DRHP and RHP

DRHP is the initial document filed with SEBI, providing comprehensive company information. After approval, it becomes the RHP, which includes specifics such as issue size and price band.

Do You Need a Demat Account to Apply for an IPO?

Yes, IPO applicants must possess a Demat account from either NSDL or CDSL.

Explaining DP Name in IPO Online Form

DP Name refers to the company through which an investor opened their Demat account. For instance, if an investor opened a Demat account via ICICI Securities, they would provide “ICICI Securities” as their DP Name.

Mandatory Requirement of PAN Card for IPO Applications

Since 2006, SEBI has mandated the use of PAN cards for IPO applicants. Failure to provide a PAN card or providing incorrect details results in application rejection.

Limitations on Applying for Multiple IPO Applications with One PAN Card

Only one IPO application is permitted per person using a single PAN card, name, or Demat account. Attempting multiple applications with the same PAN card results in rejection.

Limit on IPO Applications per PAN Number

Each PAN number can only be associated with one IPO application as per regulations.

Restrictions on the Number of IPO Applications from One Bank Account

The number of IPO applications allowed from a single bank account varies across banks. For instance, SBI Bank permits up to 5 IPO applications, while ICICI Bank allows only one.

Possibility of Applying for IPOs via BHIM UPI

SEBI allows IPO applications via UPI ID, making BHIM app a convenient option. Applying via UPI simplifies the application process.

Differentiating Between Book Building and Fixed Price IPOs

IPOs can be conducted through either the book building method or fixed price method, or a combination of both. These methods vary in how shares are offered to the public.

Understanding RII, NII, QIB, and Anchor Investors

These categories determine the eligibility and bid amounts of IPO applicants:

  • RII: Retail Individual Investors, with bid amounts below Rs.2 lakh.
  • NII: Non-Institutional Investors, with bid amounts exceeding Rs.2 lakh.
  • QIB: Qualified Institutional Investors, comprising various financial institutions.
  • Anchor Investors: High-value investors who subscribe to shares before the IPO to boost investor confidence.

Process for Retailers to Apply in NII Category

Retail investors can apply in the NII category by bidding for amounts exceeding Rs.2 lakh.

Duration of IPO Opening

IPOs typically remain open for 3 to 10 days, depending on circumstances such as price band revisions.

Explanation of Market Lot Size

Market lot size refers to the fixed number of shares allocated for the minimum IPO application. Investors can apply for multiples of the market lot size.

Absence of Guarantee for IPO Application Success with Allotment

There is no assurance of successful allotment in IPOs, especially in oversubscribed cases where allotment is based on lottery.

Understanding Basis of Allotment

The basis of allotment details how shares are allocated among applicants based on subscription levels.

Possibility and Procedure of Multiple Applications for One IPO

Applicants can submit multiple IPO applications using different Demat accounts and PAN numbers, subject to regulations.

Procedure to Cancel an IPO Application

IPO applications can be cancelled during the subscription period by submitting a revision form to syndicate members.

Eligibility of Minors to Apply in IPOs

Some companies allow IPO applications from minors, with the guardian’s involvement.

Guidelines for Choosing the Right IPO

Factors such as company fundamentals, financial performance, and future prospects should be considered when selecting IPOs.

Methods of Applying for an IPO

IPO applications can be submitted via ASBA, UPI, or offline forms.

Identifying Risk Factors in IPOs

Potential risks include uncertain allotment, application rejection, and fluctuating share prices post-listing.

Specifying Minimum and Maximum Amounts for Retail Category in IPOs

Retail investors can apply for amounts ranging from a minimum lot size to a maximum defined by the company.

Procedure for Withdrawing an IPO Application

IPO applications can be withdrawn during the bidding period by submitting a withdrawal request.

Process of Selling IPO Shares on Listing Day

Investors can sell IPO shares on the listing day through brokers or online trading platforms.

Eligibility of Private Limited Companies and Family Trusts to Apply for IPOs

Private Limited Companies and Family Trusts can apply for IPOs in the NII category.

Timelines for IPO Listing and Allotment

IPO listing occurs within six working days of the offer closing date, while allotment is completed within three to four working days.

Checking IPO Allotment Status

Allotment status can be checked on the BSE website or IPO registrar website on the designated date.

Lock-in Periods for Anchor Investors, HNI/NII, and Retailers

Anchor investors have a lock-in period of 30 days for 50% of shares and 90 days for the remaining 50%. HNI/NII and retailers have no lock-in period.

Ineligibility of Current Accounts for IPO Applications

Most banks do not accept IPO applications via current accounts.

Process for Applying for IPOs via HUF

HUFs can apply for IPOs following standard procedures.

Procedure and Timing for Applying for IPOs
IPO applications can be submitted until the specified deadline, with timing constraints depending on the application method.

Checking IPO Subscription Status

Subscription status can be monitored on various platforms including the company’s website and stock exchanges.

Applying for IPOs Offline

Offline IPO applications involve obtaining physical forms from brokers, filling them out, and submitting them via banks or brokers.

Applying for IPOs Online Online IPO applications can be submitted via ASBA, UPI, or other online platforms.

Process for Retailers to Apply in NII Category

Retail investors can apply in the NII category by bidding for amounts exceeding Rs.200,000.

Circuit Limits on IPO Listing Day

Circuit limits restrict share price movement on listing day, typically set at 20% for B Category listings and 5% for T Category listings.

Possibility of Applying for IPOs on Sundays IPO applications can be submitted online on Sundays, depending on the chosen application method.

Procedure for Selling IPO Shares IPO shares can be sold on the listing day through brokers or online trading platforms.

Accessing Updates on Upcoming IPOs Information about upcoming IPOs can be found on various online platforms and financial websites.

Tax Implications on IPO Investments Gains from selling IPO shares within 12 months are subject to taxation as short-term capital gains or losses.