Initial Public Offering

IPO Full Form in English, letter by letter

IPO is the first sale of a company's shares to the public, after which the shares are listed and traded on a stock exchange.

IPO Full Form in Indian Languages

IPO stands for Initial Public Offering, the event that turns a private company into a listed one. In India it follows a SEBI-regulated timetable, and the name in six Indian languages is given below.

What happens in an IPO

The IPO full form is Initial Public Offering. It is the first time a company offers its shares to the general public. After the offer the shares are listed and traded on a stock exchange: in India, the BSE and the NSE. Before the IPO the company is privately held. After it, anyone with a demat account can buy and sell its shares.

Companies come to market for two broad reasons. A fresh issue raises new money for the company, for expansion, repaying debt or research. An offer for sale means existing promoters or investors sell some of their shares, and the money goes to them and not to the company. Many IPOs are a mix of both, and the split is shown on the front pages of the prospectus.

How an Indian IPO is regulated and priced

Indian IPOs follow the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. The company files a draft red herring prospectus with SEBI and the exchanges, describing its business, finances, risks and plans for the money. After approval it issues the red herring prospectus with the price band, for example Rs 400 to Rs 420 per share, and the number of shares on offer.

Investors bid inside that band, and the final price is fixed at the end of bidding based on demand. For a profit-making company on the mainboard the usual reservation is at least 35% for retail individual investors, 15% for non-institutional investors and up to 50% for qualified institutional buyers. Loss-making companies follow a different split, and SEBI has also consulted on changes for very large issues, so read the prospectus of the issue you are applying to. A retail investor can bid for up to Rs 2 lakh in an issue.

ASBA and UPI: how your money is blocked, not paid

You do not pay when you apply. Payment is done through ASBA, or through a UPI mandate, which blocks the application amount in your bank account. The money is debited only if shares are allotted, and the rest is released. You must approve the UPI mandate request in your UPI app before the issue closes, or the bid is not valid.

If an issue is oversubscribed, retail allotment is decided by a lottery. In a popular issue only a small share of applicants get anything, which is why some investors apply through family members, each with their own PAN and demat account. Applying multiple times with one PAN is not allowed.

Allotment, listing day and what it tells you

After the issue closes, the registrar finalises the basis of allotment and shares are credited to demat accounts. Since late 2023 the rule is that shares are listed within three working days of the issue closing, so the whole process from last day to first trade is short.

The opening price shows what the market thinks of the issue compared with the offer price. A strong listing does not make the company a good long-term holding, and a weak one does not automatically make it bad. Before applying, read the risk factors, the return on equity for recent years, any pledge of promoters' shares and what the company will do with the money. The grey market premium quoted in the media is unofficial and unregulated, and should be treated as rumour, not research.

Lock-ins, costs and other ways to raise money

SEBI places lock-in periods on promoters' holdings and on some pre-IPO shareholders, so not everyone can sell on listing day. The company pays fees to merchant bankers, underwriters, the registrar and the exchanges, and these costs are disclosed in the prospectus. A further public offer (FPO) raises more money after listing, and a rights issue offers new shares to existing shareholders first. Smaller companies can list on the SME platforms of the exchanges, which have different rules, bigger minimum lots and higher risk.

How a small investor applies

You need a PAN, a demat account and a bank account with enough balance, or a UPI handle linked to it. Apply through your broker's app or the bank's net banking during the open window, in whole lots. The lot size and cut-off price are printed in the prospectus.

After closing, check allotment on the registrar's website using your PAN or application number. If shares are allotted they appear in the demat account by listing day, and if not, the blocked amount is released. Do not borrow to bid, and spread your money across several investments instead of putting it all in one issue.

An IPO is a regulated process with fixed steps: prospectus, price band, bidding window, allotment, listing. Read the risk factors before you bid, and rely on the prospectus, not on rumours.

IPO Full Form: Common Questions