How an IPO Works in India: DRHP, Price Band, Anchor Investors and Listing Day, Explained
A plain-language guide to the terms you will see in every IPO headline, from fresh issue and offer for sale to lot size, allotment and the grey market.
Big listings such as the Jio Platforms IPO bring a flood of jargon. Here is a plain-language guide to how an initial public offering (IPO) works in India, from the first filing to the first day of trading.
1. The draft: DRHP
A company that wants to list first files a draft red herring prospectus (DRHP) with the market regulator, SEBI. It describes the business, its finances, risks, management, legal cases and what it plans to do with the money. SEBI reviews it and may ask for changes before giving its observations, which effectively clear the company to proceed.
2. The final document: RHP
Shortly before the issue opens, the company files the red herring prospectus (RHP). It contains almost everything in the final offer document, including the dates, but usually not the final price. This is the document investors should read.
3. Fresh issue or offer for sale?
- Fresh issue: the company creates new shares and receives the money, for example to repay debt or expand.
- Offer for sale (OFS): existing shareholders such as founders or investors sell some of their shares. The money goes to them, not the company.
Many IPOs combine both. It matters, because an IPO that is mostly OFS raises no new money for the business.
4. The price band and lots
In a "book-built" issue, the company announces a price band, for example ₹100–₹105 per share. Investors bid within it, usually at the cut-off price (the top of the band) for retail investors. Shares are sold in lots, a minimum number of shares per application.
5. Anchor investors
A day before the issue opens, large institutions called anchor investors can buy part of the issue. Their shares are locked in for a period after listing. Strong anchor demand is often seen as a vote of confidence, but it is no guarantee.
6. Who gets the shares
The issue is divided into categories: qualified institutional buyers (QIBs), non-institutional investors (large individuals and companies) and retail investors (applications up to ₹2 lakh). In a popular issue, retail demand can be many times the shares available, and allotment is then decided by a lottery among applicants, so many people get nothing.
7. Applying
Retail investors usually apply through their bank or broker app using ASBA, where the money is only blocked in the account, typically through UPI. If no shares are allotted, the block is released.
8. Listing day
Under SEBI's current timeline, shares generally list on the stock exchanges three working days after the issue closes (known as T+3). The price can open above the issue price (a "listing gain") or below it.
A word on the grey market
You will see "grey market premium (GMP)" figures in the news. These come from unofficial, unregulated trading before listing. They are not reliable predictors and you have no protection if you deal in that market.
Golden rules
- Read the RHP's risk factors and the use of proceeds.
- Don't apply just because an IPO is heavily subscribed.
- Never borrow money to apply for IPOs.
This explainer is for information only and is not investment advice.
Sources
This article draws on the following reporting. Dates are when each source was originally published.
- Securities and Exchange Board of India: SEBI (official website)
- Groww: Jio Platforms IPO Likely to Open on October 21: Check Issue Size, Dates and Key Details
- Wikipedia: Initial public offering
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