15 August,2026 03:28 PM IST | Mumbai | mid-day online correspondent
Representational Image. File pic.
Indian companies raised Rs 1.9 lakh crore through more than 360 IPOs, a recent Grant Thornton Bharat report said. But what is an IPO?
An initial public offering (IPO) is when a privately-held company decides to become a public listed company by offering its shares to the public for the first time.
To be listed on the stock exchanges, a company needs to first offer its shares for subscription to the public through an IPO. The companies offer shares to be traded on the stock exchanges, which helps determine the value of the company's stock. An IPO is also referred to as a primary market in stock exchanges.
Primarily, companies issue an IPO to raise capital. Usually, companies use the IPO proceeds for growth and business expansion purposes, but they may issue an IPO to repay their debt. Companies offer a fresh issue of shares for an IPO, but some might follow an Offer for Sale (OFS) or a mix of both fresh issue and OFS.
In an OFS, the sale proceeds will go to the shareholders selling their stake rather than to the company. Typically, promoters dilute their stake through an OFS to meet regulatory shareholding requirements. So, in an OFS, the company does not raise capital but the existing shareholders get to transfer their shares to the general public and earn profit.
When a company plans to take the IPO route, it chooses underwriters to lead the process. The company may opt for one or more underwriters to collaborate on the different process of the IPO.
These underwriters are entrusted with the responsibility of document preparation, filing, marketing, and issuance. Underwriters guarantee the sale of an IPO, and book runners are the lead underwriters in an IPO process and they manage the entire process of an IPO.
An important step to launch an IPO is filing of the draft red herring prospectus with the Securities and Exchange Board of India (SEBI). Only after seeking the regulator's approval can a company proceed with the intended IPO.
The IPO price is derived by evaluating the general investor interest or sentiment, prevailing market conditions, a company's valuations, financial fundamentals, earnings per share, and industry benchmarks. This is usually in a band with the lower floor price and upper cap price.
The issuing company and the book-running lead managers decide the lot size or the equity shares to be offered. As per the regulatory guidelines, the company must allocate 15 per cent of its shares to retail individual investors. The company may allocate a portion of the shares to qualified institutional buyers, employees, non-institutional investors, shareholders of a parent company, among others.
Once the shares are subscribed, the company's shares are listed on the stock exchanges for trading purposes. The company is not involved in this trading activity, also known as the secondary market in stock exchanges.
