Skip to content
Log inSign up
Level 10 of 13 · IPO

IPO: Initial Public Offering

By the end you will: evaluate new public offerings.

An IPO is when a company sells its shares to the public for the first time. IPOs get a lot of hype ("listing gains!"), but some list below their issue price and fall further. This level explains how IPOs work, every term you’ll see, and a practical checklist to judge one. Open MojoStox’s IPO page to see real current and upcoming issues.

Start with 10.1: What is an IPO?
0 / 28 topics0%

How IPOs work

  1. 10.1What is an IPO?An Initial Public Offering (IPO) is the first time a private company offers its shares to the public and lists on a stock exchange.
  2. 10.2Why does a company launch an IPO?To raise growth capital, repay debt, let early investors exit, and gain visibility and credibility.
  3. 10.3How does an IPO work?The company appoints bankers, files documents with SEBI, sets a price band, takes bids for about 3 days, allots shares and lists, all…
  4. 10.4What is a DRHP?The Draft Red Herring Prospectus (DRHP) is the first detailed document a company files with SEBI before an IPO.
  5. 10.5What is an RHP?The Red Herring Prospectus (RHP) is the updated final offer document filed before the issue opens. It includes the issue dates and is…
  6. 10.6What is the IPO price band?The price band is the range within which you can bid, e.g. ₹285–₹300. The top is the cap price; the bottom is the floor price.
  7. 10.7What is the issue size?The issue size is the total amount raised in the IPO: number of shares offered × issue price.
  8. 10.8What is face value (in an IPO)?The nominal value of each share (often ₹1, ₹2, ₹5 or ₹10). The issue price is much higher; the difference is the share premium.
  9. 10.9What is an IPO lot size?The lot (market lot) is the minimum number of shares you can apply for; applications must be in multiples of it.
  10. 10.10What is the retail investor quota?The share of the IPO reserved for Retail Individual Investors (RIIs) applying up to ₹2 lakh, usually 35% (10% in some issues for companies…
  11. 10.11What is QIB?Qualified Institutional Buyers (QIBs): mutual funds, banks, insurance companies, FPIs, pension funds. They usually get 50% of a book-built…
  12. 10.12What is NII?Non-Institutional Investors (NIIs), also called HNIs: individuals and entities applying above ₹2 lakh. Usually 15% of the issue, split…
  13. 10.13What is IPO subscription?Subscription shows how many times the shares on offer were applied for. "Subscribed 20×" means bids for 20 times the shares available.
  14. 10.14What is IPO allotment?Allotment is when the registrar decides who gets shares. Allotted shares go to your demat; for others the blocked money is released.
  15. 10.15What is listing day?Listing day is the first day the shares trade on NSE/BSE.
  16. 10.16What is listing gain?Listing gain is the profit from the difference between the issue price and the listing/selling price.
  17. 10.17What is GMP (Grey Market Premium)?GMP is an unofficial, unregulated price at which some people informally trade IPO shares (or applications) before listing.
  18. 10.18What is an OFS (Offer for Sale)?In an OFS, existing shareholders (promoters, private equity, VCs) sell their shares. The money goes to them, not to the company.
  19. 10.19What is a fresh issue?A fresh issue creates new shares; the money goes into the company for the stated objects.
  20. 10.20What is an anchor investor?Anchor investors are large QIBs who are allotted shares one working day before the IPO opens, at or above the issue price, with a lock-in…

How to identify a good IPO

Judge an IPO like any other stock (Level 6), with extra care: there’s no trading history, and sellers know far more than buyers. Read the RHP, especially these sections.

  1. 10.21Evaluate the business modelUnderstand what the company sells, to whom, how it makes money and why customers choose it.
  2. 10.22Evaluate revenue growth, profitability, debt and cash flowCheck 3 years of restated financials in the RHP: revenue growth, profit (or losses), margins, debt and operating cash flow.
  3. 10.23Evaluate the promoter backgroundResearch the promoters’ history, other businesses, legal cases and post-IPO holding.
  4. 10.24Evaluate company valuation and P/ECalculate the IPO’s market cap and P/E at the issue price and compare with listed peers.
  5. 10.25Evaluate industry outlook and competitorsIs the industry growing? Who are the competitors, listed and unlisted? What is the company’s market share?
  6. 10.26Evaluate IPO objectives and risks in the offer documentRead "Objects of the Offer" (how money will be used) and "Risk Factors" (what the company itself says could go wrong).
  7. 10.27How to read an IPO prospectusA practical order for reading a 300–500 page RHP without getting lost.
  8. 10.28Practical IPO evaluation checklistAnswer these before applying.