An Initial Public Offering (IPO) is the first time a company sells its shares to the general public and gets them listed on a stock exchange like NSE or BSE. Until the IPO, the company is private, only its founders and early investors own it. After the IPO, anyone with a demat account can own a piece of it.
Why would a company sell part of itself?
Mostly for money, but not only for money. Here are the usual reasons.
To raise capital for growth. Say Kaveri Motors, a fictional electric scooter maker, wants ₹800 crore to build a new factory. It could borrow from a bank and pay interest for years. Or it could issue new shares to the public and raise the money without taking on debt. That is the classic IPO story.
To let early investors exit. Founders, employees with stock options, and venture funds who backed the company early often want to convert years of paper wealth into actual cash. An IPO gives their shares a public market where they can be sold.
For credibility and visibility. A listed company files audited results every quarter and follows the rules of the market regulator, the Securities and Exchange Board of India (SEBI). That scrutiny makes lenders, customers and job candidates take it more seriously.
Where do my shares come from when I apply?
An IPO happens in the primary market. You buy shares directly from the company (or from its existing shareholders), not from another trader. Once the shares list on the exchange, all further buying and selling happens in the secondary market between investors. If that split is new to you, read what is the difference between the primary and secondary market?. It is the single most useful piece of context for understanding IPOs.
Here is the journey in one line: Kaveri Motors announces an IPO → Anjali applies during the bidding window through her broker → shares are allotted and credited to her demat account → the stock lists on NSE and BSE → from that day, Anjali can sell her shares to anyone in the open market.
What does an IPO look like from an investor's side?
Suppose Kaveri Motors offers shares at ₹95–₹100 each, with a minimum application of one lot of 150 shares. Anjali applies for one lot, so roughly ₹15,000 is blocked in her bank account. If she is allotted the shares, the money is debited and 150 shares land in her demat account before listing day. If she is not allotted (which happens often in popular IPOs) the blocked amount is simply released back.
The full walkthrough of the mechanics, from draft papers to listing, is in how does the IPO process work, from DRHP to listing? When you are ready to actually apply, follow how to apply for an IPO on the Rupeezy app.
Things to keep in mind
- An IPO is a fundraising event for the company, not a promise of listing gains for you. Plenty of stocks list below their issue price.
- Applying does not guarantee allotment. Popular IPOs are heavily oversubscribed and allotment for small investors works like a lottery.
- Read the company's offer document (the RHP) before applying. It tells you what the money will be used for and lists the risks in the company's own words.
- A newly listed company has a short public track record, so judge it on its business, not on the excitement around listing day.
Read next
How does the IPO process work, from DRHP to listing? — The journey from draft prospectus to the first trade.