India’s IPO System:Securities and Exchange Board of India (SEBI)

1. Understanding an IPO

An Initial Public Offering (IPO) is the process by which a privately held company offers its shares to the general public for the first time. Through an IPO, a company becomes publicly listed on a stock exchange, such as the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE). The primary goal of an IPO is to raise capital for expansion, reduce debt, fund research, or provide an exit opportunity for early investors and promoters.

An IPO marks a significant milestone in a company’s journey because it transitions from a private entity with limited ownership to a public entity with diverse shareholders. It also enhances the company’s visibility, credibility, and valuation in the market.

2. Regulatory Framework of the Indian IPO System

The IPO process in India is governed by SEBI, established in 1992, which regulates and ensures that companies follow strict norms before going public. SEBI’s guidelines protect investors’ interests and maintain transparency. Other regulatory bodies involved include:

Ministry of Corporate Affairs (MCA) – Oversees company law compliance.

Stock Exchanges (NSE/BSE) – Approve listing applications and trading permissions.

Registrar of Companies (ROC) – Records and validates company documents.

Depositories (NSDL/CDSL) – Facilitate electronic shareholding and transactions.

SEBI’s (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR) lay down the specific rules for disclosures, eligibility, and allotment in an IPO.

3. Types of IPO Issues in India

There are primarily two types of IPO issues based on pricing methods:

Fixed Price Issue:

The company sets a fixed price for each share in advance.

Investors know the share price before applying.

After closure, demand is revealed, and shares are allotted accordingly.

Book Building Issue:

The company sets a price band (e.g., ₹100–₹120).

Investors bid within the range, specifying the quantity and price they are willing to pay.

The final issue price is determined based on demand (cut-off price).

Most modern IPOs in India use this method due to market efficiency.

4. Eligibility Criteria for Companies

For a company to launch an IPO in India, SEBI mandates certain eligibility conditions:

Net Tangible Assets: Minimum of ₹3 crore in the preceding three years.

Net Worth: Minimum of ₹1 crore in the last three years.

Track Record: Positive operating profit for at least three out of the last five years.

Post-Issue Capital: Minimum ₹10 crore paid-up capital.

Promoter Contribution: Promoters must hold at least 20% of post-issue capital for one year.

If companies do not meet these conditions, they can still approach the market through alternative routes like the SME (Small and Medium Enterprises) Platform or offer for sale (OFS) mechanisms.

5. IPO Process in India

The IPO process involves several well-defined steps:

a. Appointment of Intermediaries

Companies hire financial and legal advisors, including:

Merchant bankers (lead managers)

Underwriters

Registrars to the issue

Auditors and legal consultants

These intermediaries help structure, price, and execute the IPO.

b. Due Diligence and Draft Red Herring Prospectus (DRHP)

The merchant banker prepares a Draft Red Herring Prospectus (DRHP), containing details like company background, financial statements, management, risks, and objectives of the issue.
SEBI reviews the DRHP to ensure full disclosure. After approval, it becomes the Red Herring Prospectus (RHP).

c. Marketing and Roadshows

Companies conduct roadshows to attract institutional and retail investors. The management team presents the company’s growth story, business potential, and financial performance.

d. Bidding and Allotment

In a book-building issue, bidding remains open for 3–5 working days.

Investors can bid through the Application Supported by Blocked Amount (ASBA) system, where funds remain blocked in their bank account until allotment.

Post-closure, the company determines the cut-off price and allots shares to investors.

e. Listing on the Stock Exchange

Once shares are allotted, they are credited to investors’ demat accounts.
The company’s shares are then listed on the NSE and/or BSE within six working days from the issue closure date (known as the T+6 timeline).

6. Categories of Investors in an IPO

SEBI divides investors into three main categories to ensure fair participation:

Qualified Institutional Buyers (QIBs):
Includes mutual funds, insurance companies, foreign portfolio investors (FPIs), and banks. They are allotted 50% of the issue size in book-built issues.

Non-Institutional Investors (NIIs):
High-net-worth individuals investing more than ₹2 lakh. Reserved quota is 15%.

Retail Individual Investors (RIIs):
Small investors investing up to ₹2 lakh. Reserved quota is 35%.

In some cases, an additional portion may be reserved for employees or shareholders.

7. Post-Listing Performance and Compliance

Once listed, companies must adhere to continuous disclosure norms, including quarterly results, corporate governance standards, and insider trading rules. SEBI and the stock exchanges monitor compliance to protect investors and maintain transparency.
Post-listing, share prices fluctuate based on demand, supply, and market perception, reflecting the company’s fundamentals and investor sentiment.

8. Role of Technology in India’s IPO System

India’s IPO ecosystem has become increasingly digitalized. Key advancements include:

ASBA system – Simplifies payment and ensures investor protection.

UPI integration – Allows retail investors to apply easily through mobile apps.

T+6 listing timeline – Reduces settlement time and enhances liquidity.

Online bidding platforms – Brokers and exchanges now offer real-time IPO bidding services.

These innovations have significantly increased retail participation in IPOs, especially among young investors.

9. Benefits of IPOs

For companies:

Access to large-scale capital for expansion.

Improved brand visibility and credibility.

Liquidity for existing shareholders and employees.

Easier access to debt financing post-listing.

For investors:

Opportunity to invest early in growing companies.

Potential for short-term listing gains.

Long-term wealth creation through equity growth.

10. Challenges and Risks

Despite its success, India’s IPO market faces certain challenges:

Market volatility – Global events can affect investor sentiment and pricing.

Overvaluation risk – Some IPOs are priced aggressively, leading to post-listing declines.

Information asymmetry – Retail investors may lack access to in-depth financial analysis.

Regulatory delays – SEBI’s scrutiny, while essential, can prolong the process.

However, ongoing reforms and improved investor education have made the system more resilient and transparent.

11. Recent Trends in the Indian IPO Market

A surge in tech-based IPOs (e.g., Zomato, Nykaa, Paytm).

Growing participation from retail and foreign investors.

Introduction of SME and startup platforms to support smaller firms.

Shift toward sustainable and ESG-compliant companies.

Pre-IPO placements and anchor investors strengthening price discovery.

12. Conclusion

India’s IPO system is a well-structured, transparent, and dynamic framework that bridges the gap between private enterprise and public capital. With the rise of digital platforms, regulatory reforms, and investor awareness, IPOs have become a cornerstone of India’s financial growth story. As India’s economy expands and more companies seek global exposure, the IPO ecosystem will continue to evolve, fostering innovation, inclusion, and wealth creation for millions of investors.