Introduction: The “Grand Opening” of a Company
Imagine your favorite local bakery has become super popular. Now, the owner wants to expand nationwide but needs funds. Instead of taking a big loan, they decide to let the public own a piece of the bakery in exchange for money.
That’s essentially what an IPO (Initial Public Offering) is—a company’s first-time sale of shares to the public.
But why do companies do this? How can you participate? And is it a good investment? Let’s break it down.
What Is an IPO?
An IPO (Initial Public Offering) is when a private company sells its shares to the public for the first time, becoming a publicly traded company.
- Before IPO → Company is privately owned (by founders/investors).
- After IPO → Anyone can buy its shares on the stock market.
Example:
- Zomato (2021 IPO) – Raised ₹9,375 crore by selling shares to the public.
- Paytm (2021 IPO) – India’s biggest IPO at that time (₹18,300 crore).
Why Do Companies Launch an IPO?
Companies go public for 4 main reasons:
- Raise Capital – Fund expansion, R&D, or pay debts.
- Liquidity for Early Investors – Founders/VCs can sell shares and cash out.
- Brand Visibility – Being listed boosts credibility.
- Employee Benefits – Offer stock options to attract talent.
Analogy:
An IPO is like a “crowdfunding campaign”, but instead of rewards, you get ownership in the company!
How Does an IPO Work? (Step-by-Step)
1. Company Prepares
- Hires investment banks (like ICICI Securities, Morgan Stanley).
- Decides share price (via “book building”) and how many shares to sell.
2. Regulatory Approval
- Submissions to SEBI (Securities and Exchange Board of India) for approval.
3. IPO Opens for Public
- Investors (like you!) can apply for shares via broker/bank.
4. Shares Listed on Stock Exchange
- After IPO, shares start trading on BSE/NSE (price changes daily).
Should You Invest in an IPO?
👍 Pros:
- Early Entry – Buy shares before they potentially surge.
- Potential High Gains – Some IPOs like IRCTC (+500% since IPO) performed well.
👎 Cons:
- Risk of Overvaluation – Some IPOs crash after listing (e.g., Paytm -70% from IPO price).
- No Past Data – Harder to analyze vs. established stocks.
Who Should Invest?
✔ Long-term investors who believe in the company.
❌ Avoid if you don’t understand the business.
How to Apply for an IPO in India?
- Have a Demat Account (Zerodha, Groww, Upstox).
- Check IPO Details (Price band, lot size) on Chittorgarh, Moneycontrol.
- Apply via Net Banking/Broker App (ASBA process).
- Allotment & Listing – If you get shares, they’ll reflect in your Demat account.
(We’ll cover a detailed IPO application guide soon!)
Famous Indian IPOs (Success & Failures)
| Company | IPO Year | Current Status |
|---|---|---|
| IRCTC | 2019 | +500% (Success) |
| Zomato | 2021 | Volatile |
| Paytm | 2021 | -70% (Biggest IPO flop) |
Final Takeaways
✔ IPO = First-time sale of company shares to the public.
✔ Companies do it to raise money, gain visibility, and reward investors.
✔ Can be profitable but risky—research before investing.
✔ Apply via Demat account when interested in an IPO.
