Source: TOI
Subject: Economics
Context: India’s IPO market has touched record highs, raising about ₹3.8 lakh crore through 701 IPOs in the last two years (2024–25), surpassing the previous four-year total.
About Initial Public Offering (IPO):
What it is?
- An Initial Public Offering (IPO) is the process through which a private company offers its shares to the public for the first time to raise equity capital, thereby becoming a publicly listed company on stock exchanges like NSE and BSE.
Types of IPO:
- Fixed price issue: The company sets a single, pre-determined price for its shares in consultation with merchant bankers, giving investors certainty about the issue price.
- Book building issue: Shares are offered within a price band (floor price to cap price), and the final price is discovered based on investor demand during bidding. This is the most common method in India.
Stages of IPO allotment:
- Preparation and due diligence: Company appoints investment banks; financial, legal, and regulatory checks are conducted.
- DRHP filing: Draft Red Herring Prospectus is filed with SEBI, disclosing business, risks, and financials.
- Pricing and bidding: Price or price band is announced; investors place bids during the subscription period.
- Basis of allotment: Registrar finalises allocation based on demand and SEBI norms.
- Listing: Shares are listed on stock exchanges and trading begins in the secondary market.
How IPO allotment works?
- IPO shares are allotted category-wise to Qualified Institutional Buyers (QIBs), Non-Institutional Investors (NIIs), and Retail Individual Investors (RIIs) as per SEBI regulations.
- If the issue is undersubscribed, all valid applicants receive shares.
- If oversubscribed, allotment is done proportionately or through a lottery system (especially for retail investors).
- Allotted shares are credited to Demat accounts, while unallotted funds are refunded.
