What Is an IPO? How Does It Work in India?

Every few weeks, a new name lights up your brokerage app: “IPO open for subscription.” Your friends are buzzing about it. Financial influencers are making predictions. And somewhere in the back of your mind, a question lingers. Should I apply? But before you click that button, it is worth understanding exactly what an IPO is, how the machinery behind it works, and what the risks look like for an ordinary investor.

An Initial Public Offering (IPO) is the process by which a privately held company sells its shares to the general public for the very first time, and gets listed on a stock exchange. Think of it this way: a startup founded in a garage grows into a large business with hundreds of crores in revenue. At some point, its founders and early investors want to raise fresh capital or exit their stakes. Their solution? Offer shares to millions of everyday investors like you, through the stock market.

After the IPO, those shares trade freely on the BSE (Bombay Stock Exchange) or the NSE (National Stock Exchange), and anyone with a demat account can buy or sell them.

“An IPO is where a company stops being a private club and opens its doors to the public. For better or worse.”

There are typically three structures used when a company goes public:

Structure	What It Means	Example
Fresh Issue	Company raises new money for growth, debt repayment or expansion	Building a new plant or scaling operations
Offer for Sale (OFS)	Existing investors sell their stake and the company gets no proceeds	An early stage PE fund exits after years of holding
Combination	Both Fresh Issue and OFS in the same IPO	Most large Indian IPOs use this structure

An IPO that is primarily an OFS means the company itself receives little or no fresh capital. Early investors are simply cashing out. Always check the ratio in the Red Herring Prospectus (RHP) before applying.

India’s primary market has transformed dramatically. In 2025 alone, the IPO market crossed the century mark for the first time in 18 years, with over 100 mainboard listings raising a staggering ₹1.75 lakh crore. To put that in perspective, it is more than half of everything raised in the 35 years between 1989 and 2023, compressed into a single calendar year. The NSE ranked as the top global stock exchange by IPO funds raised in FY25, ahead of even the NASDAQ.

100+ Mainboard IPOs in 2025

35x Avg retail oversubscription in FY25

₹1.75L Cr Raised via mainboard IPOs in 2025

Retail participation has doubled since 2019. The rise of UPI based applications means you can now subscribe to an IPO in seconds from your phone. Marquee issues routinely draw a million plus applications with ease, and the “financialisation of savings” is very real in India today.

Behind every IPO is a tightly regulated process overseen by SEBI, the Securities and Exchange Board of India. Here is how it unfolds:

1. Hire Investment Bankers (BRLMs)

The company appoints Book Running Lead Managers to set the price band, market the issue and manage the book of demand.

2. File the Draft Red Herring Prospectus with SEBI

All financials, risks, management background and use of proceeds are disclosed. SEBI reviews and clears the document, usually within 30 to 75 days.

3. Price Band Announced

A price range is set, for example ₹450 to ₹475 per share. The IPO opens for subscription, typically for 3 working days.

4. Apply via UPI or ASBA

Apply through your broker or bank app. Funds are only blocked and not debited until allotment. No more locking up capital for weeks.

5. Allotment (Typically T+6 Days)

Shares are allotted by a registrar via a computerised lottery in oversubscribed IPOs. Unallotted applicants receive a full refund automatically.

6. Listing Day on BSE or NSE

Shares are credited to your demat account and begin trading. The listing price can be above (premium) or below (discount) the issue price.

 SEBI reserves portions of every mainboard IPO for different investor types:

Category	Reservation	Who Qualifies
Retail Individual Investors (RII)	35% of the issue	Indian residents applying up to ₹2 lakh in value
Non Institutional Investors (HNI or NII)	15% of the issue	Individuals applying for more than ₹2 lakh
Qualified Institutional Buyers (QIB)	50% of the issue	Mutual funds, insurance companies and FPIs

As a retail investor, you compete only within the RII bucket. In FY25, retail investors were oversubscribed on average by 35 times, meaning for every 35 applicants, only one got an allotment. This lottery based system means diversifying across multiple IPOs is often wiser than concentrating all your capital in a single application.

While the IPO market has rewarded investors handsomely in many cases, 2025 was also a reality check. A clear pattern emerged:

• Quality IPOs with strong fundamentals and reasonable valuations performed well post listing.

• Overvalued IPOs relying purely on market sentiment struggled once listing day excitement faded.

• Some IPOs slipped 10 to 25 percent below issue price within weeks of listing.

• Listing gains are not guaranteed. Long term performance depends on earnings growth and governance quality.

What Should You Read Before Applying?

Always read the Red Herring Prospectus (RHP). Focus on: (1) Use of IPO proceeds, whether it is a fresh issue for business growth or an OFS for promoter exit; (2) Profitability track record and debt levels; (3) Valuation compared to listed peers; (4) The key risks section.

Beyond mainboard IPOs, India has a thriving SME IPO segment on the NSE Emerge and BSE SME platforms. These are smaller companies with lower entry barriers. In FY25, 242 SME IPOs were listed, more than double the mainboard count. They can deliver outsized returns but carry significantly higher risk: limited liquidity, smaller float and less regulatory scrutiny. Treat them only as a small, high risk slice of your portfolio.

An IPO can be a genuine wealth creation opportunity or a costly lesson in hype. The Indian market has matured enormously, and so should your approach to it. The investors who consistently do well are not those chasing every listing pop, but those who read the documents, understand the business and buy only at prices they can justify.

India’s primary market is entering what many experts describe as its golden era. Make sure you are investing in it and not just gambling on it.