The IPO Markets — Part 2

From paperwork to listing day

The IPO process is one of the most choreographed sequences in finance. It typically takes 3 to 6 months from the day the company decides to go public until the listing bell rings — sometimes longer if SEBI sends multiple rounds of clarifications.

The merchant banker (BRLM)

The first person the company hires is the Book Running Lead Manager — a SEBI-registered merchant banker who runs the show end-to-end. They draft the prospectus, manage SEBI interactions, organise the roadshow, set the price band, allocate to institutional investors, and underwrite if required. India’s largest BRLMs are Kotak Mahindra Capital, ICICI Securities, Axis Capital, JM Financial, and SBI Capital Markets, with global names like Morgan Stanley, JP Morgan, and Citi for international IPOs.

BRLM fees are 1-3% of issue size and are negotiated upfront. For a ₹5,000 crore IPO that’s ₹50-150 crore — meaningful, which is why competition for big mandates is intense.

DRHP and SEBI review

The Draft Red Herring Prospectus (DRHP) is the first major document — typically 500-700 pages, covering business, financials, risk factors, peer comparison, and “use of proceeds” (what the IPO money will fund). It’s filed with SEBI, who publishes it on their website for public scrutiny.

SEBI reviews and sends observations — sometimes light, often a long list of clarifications. Expect 60-90 days of back-and-forth. Once SEBI has no further questions, the issuer files the RHP (Red Herring Prospectus) with the Registrar of Companies, fixes the issue dates, and the price band.

Fixed price vs book building

Two pricing methods exist:

• Fixed price. The issuer sets a single price per share. Investors apply at that price; no bidding. Mostly used by smaller issuers.
• Book building. A price band is announced (e.g., ₹450-475). Investors bid within the band; the final cut-off is determined by demand. Almost all major Indian IPOs use book building.

In book building, retail investors can bid at “cut-off” — meaning they accept whatever final price the book determines. Institutions bid at specific prices and quantities.

Roadshow and subscription

Before the IPO opens, the BRLM and management run a roadshow — physical meetings with FIIs, domestic mutual funds, pension funds, insurance companies. They tell the story, answer questions, and gauge appetite. By the end of the roadshow, the BRLM has a rough sense of how subscription will go.

The public issue is then open for 3-5 working days. SEBI requires three investor categories:

• QIB (Qualified Institutional Buyers) — 50% of the issue. Mutual funds, FIIs, banks, insurance.
• NII (Non-Institutional Investors) — 15%. HNIs, corporates, NRIs above ₹2 lakh investment.
• Retail — 35%. Individual investors below ₹2 lakh.

If demand exceeds supply (oversubscription), allotment is partial. If demand falls short of 90%, SEBI rules require the issue to be withdrawn and money refunded.

Allotment, refund, listing

After bids close, the registrar finalises allotment within 4-6 working days. Shares hit your demat; refunds (for partial or no allotment) hit your bank. On listing day, the stock opens with a “discovery” auction in a pre-open session, and the open price reflects the supply-demand balance from overnight retail and institutional orders. From that moment on, the stock trades in the normal secondary market.

IPO jargon you’ll meet

• Anchor allocation — 30% of the QIB portion can be allotted to anchor investors a day before the issue opens. Anchors get a 30-day lock-in on at least 50% of the anchor allotment.
• Grey market premium (GMP) — unofficial, unregulated indication of what the stock might trade at on listing day. Useful as sentiment gauge, not as gospel.
• Lock-in — promoters have to hold their shares for at least 18 months post-listing. Pre-IPO investors face a 6-month lock-in.
• Green shoe option — the BRLM can issue up to 15% more shares if demand is strong, helping stabilise the price post-listing.