The world of investing often revolves around market indices like the Sensex share price, daily market news, and most importantly, the introduction of new companies to the stock exchange through IPOs. An Initial Public Offering (IPO) is a critical milestone for any company, marking its transition from a privately held entity to a publicly traded one.
Whether you’re a seasoned investor or a newcomer eager to participate in upcoming SME IPO opportunities, understanding the IPO journey—from the Red Herring Prospectus to final listing—can help you make better investment decisions. In this post, we break down each stage of the IPO process for you.
What is an IPO?
An IPO or Initial Public Offering is the process by which a private company offers its shares to the public for the first time. This not only helps the company raise capital but also increases its visibility and credibility. IPOs are listed on recognized stock exchanges like the NSE and BSE, and investors often track these listings alongside major indicators like the Sensex share price.
Step 1: Appointment of Merchant Bankers
The IPO process begins when a company decides to go public and hires merchant bankers, also known as book-running lead managers (BRLMs). These are financial experts who assist in drafting the offer document, pricing the issue, marketing the IPO, and managing investor relations.
Step 2: Preparation of the Draft Red Herring Prospectus (DRHP)
One of the most crucial steps in an IPO journey is the creation of the Draft Red Herring Prospectus (DRHP). This document is submitted to SEBI (Securities and Exchange Board of India) for approval.
The DRHP contains essential information, such as:
- Company background
- Business model
- Financial statements
- Risk factors
- Purpose of raising funds
However, the DRHP does not include the IPO price or issue size, which are disclosed later.
Step 3: SEBI Review and Observations
Once the DRHP is submitted, SEBI reviews it thoroughly to ensure that the company meets all compliance standards. SEBI may issue observations or request additional disclosures. Only after SEBI’s approval can the company move forward with the IPO.
Step 4: Filing the Final Red Herring Prospectus (RHP)
After receiving SEBI’s green light, the company files the Red Herring Prospectus (RHP), which is a final version of the DRHP with key information updated, including:
- Issue price or price band
- Number of shares offered
- Dates of the issue
At this stage, investors can start making their applications through ASBA (Applications Supported by Blocked Amount).
Step 5: Roadshows and Marketing
To attract investors, companies conduct roadshows—promotional events aimed at showcasing the company’s potential to institutional and retail investors. These are often key to a successful IPO, especially for newer or lesser-known firms such as those going for an SME IPO (Small and Medium Enterprises IPO).
Step 6: IPO Opens for Subscription
Once the IPO is live, it usually remains open for 3 to 5 working days. Investors can apply through their trading and demat accounts. Many investors also monitor the Sensex share price and other market indicators during this time to judge overall sentiment and decide on their investment strategies.
Step 7: Allotment of Shares
After the IPO closes, the company and its merchant bankers finalize the allotment based on demand. There are different categories of allotment:
- Retail Individual Investors (RIIs)
- Qualified Institutional Buyers (QIBs)
- Non-Institutional Investors (NIIs)
The allotment status is usually updated within a week, and investors receive refunds for unallotted shares.
Step 8: Listing on Stock Exchange
The final step in the IPO journey is the listing of shares on the stock exchange, either BSE or NSE, depending on where the company has chosen to list. On listing day, the company’s shares are available for trading, and the listing price is determined based on market demand.
A successful listing often reflects in a premium over the issue price, while a weak market sentiment—indicated by a falling Sensex share price—can lead to a discounted listing.
SME IPO: A Growing Opportunity
In recent years, SME IPOs have gained significant traction in India. The SME platform on the BSE and NSE is designed for small and medium enterprises looking to raise capital. While the IPO journey remains largely the same, SME IPOs typically involve:
- Lower issue size
- Simpler listing requirements
- Regional investor interest
SME IPOs offer investors a chance to get in early on high-potential businesses, although they come with higher risk compared to large-cap IPOs.
Final Thoughts
The IPO journey—from drafting a Red Herring Prospectus to final stock exchange listing—is a well-regulated, detailed process aimed at ensuring transparency for investors and opportunities for companies. Whether you’re investing in a blue-chip company or exploring an SME IPO, understanding this journey will help you make smarter, more confident choices.
Always keep an eye on market trends, and indicators like the Sensex share price, to gauge overall sentiment before investing in an IPO. And remember, thorough research is key to long-term success in the stock market.
**’The opinions expressed in the article are solely the author’s and don’t reflect the opinions or beliefs of the portal’**
