The IPO Markets

Every publicly listed company was once a small, private business. As the company grows, it typically goes through several rounds of funding before reaching the stage where it can offer its shares to the general public through an Initial Public Offering (IPO).

Here is the typical funding journey:

1. Bootstrap / Self-funded — The founders use personal savings to get the idea off the ground.
2. Angel Investors — High-net-worth individuals invest early-stage capital in exchange for equity. Typical range: Rs.10 lakh - Rs.2 crore.
3. Venture Capital (VC) — VC firms invest larger amounts (Rs.5 crore - Rs.100+ crore) in startups showing strong traction and scalability.
4. Private Equity (PE) — PE firms invest in more mature companies, often taking significant stakes. Amounts can run into hundreds of crores.
5. IPO — The company offers shares to the public for the first time, raising capital from millions of retail and institutional investors simultaneously.

Going public is a major milestone. Companies choose to list on a stock exchange for several strategic reasons:

• Raise capital — An IPO brings in large-scale funding that can be used for expansion, R&D, or debt repayment.
• Provide an exit for early investors — Angel investors, VCs, and PE firms can sell their shares on the open market and realise returns.
• Enhance visibility and credibility — A publicly listed company gains brand recognition and credibility with customers, partners, and lenders.
• Attract and retain talent — Public companies can offer Employee Stock Options (ESOPs) that are easier to value and liquidate.
• Improve liquidity — Shares can be freely bought and sold on the exchange, giving existing shareholders a liquid market for their holdings.

The IPO process in India is regulated by SEBI and follows a well-defined sequence of steps. Here is how it works:

Step 1 — Appoint Merchant Bankers
The company hires one or more SEBI-registered merchant bankers (also called Book Running Lead Managers or BRLMs) to manage the IPO process. These bankers help with pricing, regulatory filings, and investor outreach.

Step 2 — Due Diligence and DRHP Filing
The company prepares and files a Draft Red Herring Prospectus (DRHP) with SEBI. This document contains detailed information about the company's financials, business model, risks, promoter background, and how the IPO proceeds will be used.

Step 3 — SEBI Review
SEBI reviews the DRHP and may ask for clarifications or modifications. Once satisfied, SEBI grants its observation letter, allowing the company to proceed.

Step 4 — Set the Price Band (Book Building)
In a book-building IPO, the company sets a price band (e.g., Rs.500 - Rs.525 per share). Investors bid within this range during the IPO window.

Step 5 — IPO Opens for Subscription
The IPO is open for 3 - 5 working days. Investors can apply online through their broker or bank using the ASBA (Application Supported by Blocked Amount) mechanism — the money stays in your bank account (blocked, not debited) until allotment.

Step 6 — Allotment
Shares are allotted based on demand. If the IPO is oversubscribed, a lottery system determines which applicants receive shares.

Step 7 — Listing Day
The shares are listed on the stock exchange (NSE, BSE, or both). On listing day, the share opens at a market-determined price which may be above (premium), at, or below (discount) the issue price.

Once the shares are listed, they enter the secondary market. This is the market most people think of when they say "stock market" — where existing shares are bought and sold between investors on the exchange every trading day.

The primary market is where new shares are created and sold for the first time (the IPO). The secondary market is where those same shares are subsequently traded. The company does not receive money from secondary market transactions — those funds flow between investors.

After listing, the stock price is driven purely by supply and demand — influenced by the company's earnings, growth prospects, macroeconomic conditions, and investor sentiment.