How IPOs Work in India: Process, Underwriters & Pricing

Posted on Feb 1, 2026 in Business Management and Administration

Understanding the Need for an IPO

A company can change itself from a privately held entity to a publicly traded entity through the process of an IPO.

  • Raise capital: Companies IPO to raise money and gain access to liquidity by offering their stocks/shares to the public.
  • Regulatory compliance: Companies must abide by the IPO process in India — as stipulated by stock exchanges and the regulator — before their shares are eligible to be publicly traded.

Step 1: Hire an Underwriter or Investment Bank

The issuing company typically hires an underwriter or investment bank to manage the IPO process.

  • The specialist works closely with the issuing company and helps satisfy all regulatory requirements of the Securities and Exchange Board of India (SEBI).
  • Acts as an intermediary between the issuing company, investors and the market regulator.
  • An underwriter can be an investment bank or a financial institution.
  • Depending on the size of an IPO, the issuing company can hire one or more underwriters.
  • It helps the company analyze factors such as how much money can be raised, decide on the valuation of the IPO, and determine the types and quantity of securities to issue.

Roles and Responsibilities of an IPO Underwriter

  1. Ascertain the risks associated with an IPO.
  2. Help in preparing the Draft Red Herring Prospectus (DRHP).
  3. Provide a guarantee to the issuing company (as applicable).
  4. Ensure regulatory compliance.

Types of Underwriters

  1. Insurance underwriter
  2. Mortgage underwriter
  3. Loan underwriter
  4. Securities underwriter
  5. Equity underwriters
  6. Debt security underwriters

Examples of IPO Underwriters in India

  1. Axis Capital Limited
  2. Fedex Securities Limited
  3. JM Financial Limited
  4. Aryaman Financial Services
  5. Gretex Corporate Services Limited
  6. Kotak Mahindra Capital Company
  7. Citigroup Global Markets
  8. ICICI Securities Limited
  9. Pantomath Capital Advisory
  10. SBI Capital Markets Limited

Step 2: Registration for IPO

This step involves the preparation of a registration statement along with the draft prospectus, also known as the Red Herring Prospectus (RHP). Submission of the DRHP/RHP is mandatory as per the Companies Act and SEBI regulations.

The document must contain all compulsory disclosures required by SEBI and the Companies Act.

Key Components of the RHP

  1. Definitions: Contains definitions of industry-specific terms.
  2. Risk Factors: Discloses possibilities that could impact the company’s finances.
  3. Use of Proceeds: Explains how the money raised from investors will be used.
  4. Industry Description: Details the company’s position and forecasts for the overall industry segment (for example, if the company belongs to the IT segment, forecasts and predictions about that segment are provided).
  5. Business Description: Details the core business activities of the company.
  6. Management: Provides information about key management personnel.
  7. Financial Description: Comprises financial statements along with the auditor’s report.
  8. Legal and Other Information: Details litigation against the company and miscellaneous information.

Step 3: SEBI Verification

The market regulator, SEBI, verifies the disclosure of facts by the company. If the application is approved, the company can announce a date for its IPO.

Step 4: Apply to the Stock Exchange

The company must make an application to the stock exchange to float its initial issue.

Step 5: Roadshows and Marketing

Roadshows are marketing and advertising tactics to attract potential investors. Key highlights of the company are shared with various audiences.

Executives adopt user-friendly measures such as question-and-answer sessions, multimedia presentations, group meetings, online virtual roadshows, and so on.

Step 6: IPO Pricing Methods

Pricing of the IPO is done either through a fixed-price issue or by the book-building offering method.

Step 7: Allotment of Shares

Once the IPO price is finalized, the company, along with the underwriters, determines the number of shares to be allotted to each investor. In the case of over-subscription, partial allotments will be made. IPO shares are usually allotted to bidders within 10 working days of the last bidding date.

IPO Pricing Strategies

What is Issue Price?

  1. The issue price determines how much money the company can raise from the IPO.
  2. The price is typically set by the investment bank underwriting the IPO.
  3. Underwriters consider several factors when setting the price, including current market conditions, the company’s financial history, and demand for the stock.
  4. Investors pay close attention because the issue price can greatly impact returns: if the stock price rises after the IPO, those who bought at the issue price will see gains; if the price falls, investors may incur losses.

What is a Fixed Price Issue?

  • A fixed-price issue is a method of issuing shares where the company sets a specific, predetermined price for the securities.
  • Investors know the share price before investing, which simplifies the decision.
  • It is straightforward but lacks flexibility to adjust to market demand.
  • In a fixed-price issue, the company going public determines the share price beforehand and publicly announces it, giving potential investors clear information about the cost per share during the initial offering.

For example: Imagine a company decides to go public with a fixed-price issue at Rs. 100 per share. Investors can buy the shares at this exact price during the initial offering, with no bidding involved.