Process of IPO in India

Why do Companies Go Public and Launch IPOs?

From raising capital to liquidating shares, there are many reasons why companies go public. The need for the IPO process is usually encouraged by the following reasons:

• Raising Capital: Raising large capital is one of the primary goals of an initial public offering (IPO). This capital is used for funding a new project, paying back debts, and growing the firm.
• Improve Brand Image and Reputation: A business has to meet a number of capital and regulatory requirements in order to initiate an IPO. This increases the company's reputation by bringing transparency to its operations and finances.
• Exit Opportunity for Existing Investors: In an IPO, a company's original investors have the opportunity to sell all or part of their shares to the general public.
• Share Liquidity: In a private corporation, trading or transacting equity might be challenging. Following the IPO, a company's shares become readily tradable after being listed on the stock markets.
• Improve Transparency: An IPO is a transparent business strategy used to win over stakeholders.  SEBI, the market regulator, has established a set of disclosure requirements that a firm must adhere to when it launches an IPO.

 

Step-by-Step Process of IPO in India

Here's an outline of the IPO process that companies need to follow when going public:

 

Step 1: Hire an Investment Bank

Hiring an investment bank or an underwriter is the first stage in the initial public offering (IPO) process. Underwriters and investment banks perform due diligence to set the offering price and promote the shares to possible buyers. They are essential to the management of the entire initial public offering (IPO) process.

 

Step 2: Prepare RHP and Register with SEBI

The company creates a thorough registration statement, or Red Herring Prospectus (RHP), with the help of the investment bank and legal counsel. This document contains detailed information about the company's business operations, financial statements, management group, offering terms, and risk factors. SEBI, the regulatory authority governing the Indian stock markets, must receive and approve the RHP.

 

Step 3: Application to Stock Exchange

After receiving SEBI's clearance, the company applies to list its shares on a recognized stock market, like the National Stock Market (NSE) or the Bombay Stock Exchange (BSE). To make sure the company's application complies with listing standards, the stock exchange performs its due diligence and carefully reviews it.

 

Step 4: Roadshow and Marketing

Following the RHP's approval, the firm and its underwriters set out on a "roadshow" to promote the initial public offering to prospective investors. This entails giving institutional investors the company's business model, growth prospects, and financial projections. The goal of the roadshow and marketing is to increase demand and interest in the company's stock.

 

Step 4: Pricing the IPO

The underwriters evaluate the number of shares to be issued and the ultimate offering price based on input and demand from investors during the roadshow. This crucial pricing procedure impacts the quantity of capital raised and the company's valuation.

 

Step 05: Allotting the Shares to Public Investors

Investors can subscribe to the IPO following the pricing. During the subscription period, which usually lasts a few days, investors who are interested in the IPO can apply for the shares through designated channels, such as brokers or online platforms.

 

Step 6: Going through with the IPO

The company gets the offering money if the IPO is successful and all of the shares are purchased. Following the listing, the shares start trading on the chosen stock market(s). With this, the business officially becomes a publicly traded company, subject to continuing legal constraints, shareholder scrutiny, and market expectations.

Conclusion

Familiarizing themselves with the initial public offering (IPO) process enables investors to make well-informed decisions and participate in India's vibrant capital market. The IPO process guarantees investor protection, transparency, and fairness through strict criteria and regulatory control. Businesses that successfully manage this complex process open up new avenues for growth, innovation, and value creation.