How Companies Get Listed (IPO Process) – Complete IPO Guide Explained

🏦 IPO Basics Explained | How Companies Get Listed (IPO Process)

🧾 What is IPO (Initial Public Offering)?

IPO (Initial Public Offering) is the process by which a private company becomes a public company by offering its shares to the general public for the first time.
It allows ordinary investors to buy ownership in that company through the stock market.

📘 In simple words:
When a company needs money to grow and decides to share a portion of its ownership with the public, it sells shares through IPO.

🏢 Why IPO is Needed for a Company?

Companies go for an IPO mainly to:

Raise capital for expansion, R&D, or debt repayment
Enhance brand reputation and credibility
Provide exit to early investors or promoters
Attract and retain employees through stock options (ESOPs)
Increase public visibility and valuation

⚙️ How Does the IPO Process Work?

Here’s the step-by-step process of how a company gets listed through an IPO:

Board Approval: Company’s board decides to go public.
Appointment of Merchant Bankers (Underwriters): Experts manage IPO and pricing.
Due Diligence & Filing DRHP (Draft Red Herring Prospectus): Filed with SEBI for approval.
SEBI Approval: Once cleared, IPO dates are announced.
Pricing & Marketing: IPO price band is declared, and company promotes the issue.
Public Subscription: Investors apply via UPI, ASBA, or broker platforms.
Allotment: Shares are allotted to investors.
Listing: Shares are listed on NSE/BSE, and trading begins.

💼 Types of IPO

Fixed Price Issue:
The company sets a fixed price for its shares.
Example: ₹150 per share.
Book Building Issue:
A price band is declared (e.g., ₹100–₹120).
Investors bid within the range, and final price (cut-off) is decided based on demand.

💡 What is the Meaning of “Lot” in IPO?

A lot is the minimum number of shares an investor can apply for in an IPO.
Example: If 1 lot = 50 shares, and price = ₹100, then the minimum investment = ₹5,000.

📲 How to Buy an IPO?

You can apply for an IPO using:

UPI-based applications via Zerodha, Groww, or Paytm Money
ASBA method via net banking (linked to your Demat account)
Through your broker or bank account directly

After applying, allotment and status can be checked on BSE/NSE websites or registrar sites like Link Intime or KFintech.

💰 Is Buying IPO Beneficial or Not?

✅ Advantages:

Can give high listing gains if company performs well
Early entry at lower price before big investors
Helps in long-term wealth creation

❌ Disadvantages:

Not all IPOs perform well after listing
Prices may drop below issue price (listing loss)
High demand = low allotment chance

⚖️ IPO Risks vs. Stock Investment Risks

Factor	IPO	Already-Listed Stocks
Transparency	Limited history	Full data available
Risk	High (uncertain performance)	Moderate
Liquidity	Low initially	High
Price	Fixed by company	Market-driven

📊 How Does IPO Give Profit?

If IPO lists above issue price, investors gain instantly (called listing gain).
If company grows in long term, share value increases, giving capital appreciation.

💭 IPO Basics and Investment Strategy

Invest in IPOs of financially strong and reputed companies.
Read DRHP before investing.
Avoid hype; check valuation and market conditions.
Don’t invest all money in one IPO; diversify your portfolio.

🧠 IPO Terminology

Term	Meaning
Price Band	Range within which investors can bid for shares (e.g., ₹100–₹120).
Floor Price	Lowest price in the band.
Cut-off Price	Final decided price based on bids.
Retail Individual Investor (RII)	Individuals investing up to ₹2 lakhs.
Non-Institutional Investor (NII)	High net worth individuals investing above ₹2 lakhs.
Qualified Institutional Buyer (QIB)	Big investors like mutual funds, banks, etc.
Grey Market Premium (GMP)	Unofficial premium before listing, shows market sentiment.
Anchor Investors	Institutional investors who buy shares before IPO opens to public.

💼 Role of Investment Banks and Underwriters

Underwriters help the company decide IPO price and ensure full subscription.
They market the IPO, handle paperwork, and manage risks if shares remain unsold.

💬 Common FAQs (English + Hindi)

❓ What is IPO in simple words? (सरल शब्दों में IPO क्या है?)

It means when a company sells its shares to the public for the first time to raise money.

❓ Is IPO better than stock? (क्या IPO स्टॉक से बेहतर है?)

Not always. IPOs are riskier but can offer higher returns in the short term.

❓ Can IPO go in loss? (क्या IPO घाटे में जा सकता है?)

Yes, if stock lists below issue price, you can face listing loss.

❓ Is IPO risk-free? (क्या IPO रिस्क फ्री है?)

No, IPOs are not risk-free; performance depends on company fundamentals and market demand.

❓ Is IPO pure luck? (क्या IPO प्योर लक है?)

Allotment is partly luck-based if oversubscribed, but profits depend on market fundamentals.

❓ What is the difference between Fixed Price and Book Building Issue?

Fixed Price = One set price.
Book Building = Price discovered through investor bids within a price band.

❓ Is investing in IPO less risky than buying listed stocks?

No, it’s generally more risky because less performance history is available.

❓ How can a retail investor apply for IPO?

Through UPI, ASBA, or broker platforms using a Demat account.

❓ Where to check IPO allotment status?

On BSE/NSE official websites or registrar sites like KFintech, Link Intime.

❓ How is IPO offering price decided?

It’s based on company valuation, demand, and underwriter’s analysis.

💼 Case Study: Google’s IPO Strategy (2004)

Google chose a Dutch Auction method instead of a traditional IPO to ensure fair pricing.
Goal: Avoid massive first-day price jumps (“IPO pop”) and let investors decide fair value.
Faced issues as retail investors found bidding complex.
Google was valued around $23 billion in 2004, now over $2 trillion.
IPO helped Google strengthen its mission of organizing the world’s information while maintaining its unique culture.

🧭 Pros and Cons of Going Public

Pros:

Access to large capital
Enhanced visibility and trust
Employee stock benefits

Cons:

Disclosure & compliance burden
Market pressure on quarterly results
Possible loss of control for founders

📊 IPO vs FPO – Key Differences Explained

When discussing how companies get listed, it’s important to understand the difference between an IPO (Initial Public Offering) and an FPO (Follow-on Public Offering) — two major ways companies raise funds from the public market.

🏦 Initial Public Offering (IPO)

What it is:
An IPO is when a private company offers its shares to the public for the first time, becoming a publicly traded company on the stock exchange.

Why companies do it:

To raise capital for growth, expansion, or new projects.
To repay debts or provide exit to early investors.
To increase market visibility and brand reputation.

Risk for investors:

Generally higher risk, since the company has no public track record.
Uncertain valuation and price volatility are common in early trading days.

📈 Follow-on Public Offering (FPO)

What it is:
An FPO is when a company that is already listed on a stock exchange issues additional shares to the public.

Why companies do it:

To raise extra funds for business expansion or debt repayment.
To allow existing shareholders or promoters to sell part of their holdings.

Risk for investors:

Generally lower risk than IPOs, since the company has an established performance history and publicly available data for analysis.

🔍 Key Differences Between IPO and FPO

Feature	IPO (Initial Public Offering)	FPO (Follow-on Public Offering)
Timing	First-time share issue	Subsequent share issue
Company Status	Private company going public	Already listed public company
Purpose	To get listed and raise capital	To raise additional funds or allow share sales
Investor Risk	High – no previous track record	Lower – established company data available
Market Visibility	First introduction to market	Already known to investors

💬 In Simple Words:

IPO is a company’s first step to the stock market, while FPO is its next step to raise more money after listing.

🏁 Conclusion

IPO is a gateway for private companies to grow using public funds and for investors to participate in a company’s journey from the ground up. However, it’s not risk-free — smart research, timing, and diversification are key for success.