Part 21 Full Process of Applying for IPO From DRHP to Final Allotment

Part 21 - Explained Full Process of Applying for an IPO in India: From DRHP to Final Allotment

How to Apply for an IPO in India: Step-by-Step Guide from DRHP to Allotment

1. Company Preparation: Filing the Draft Red Herring Prospectus (DRHP)

What Happens: Before investors can apply, the company prepares to go public by filing a Draft Red Herring Prospectus (DRHP) with SEBI. This is the starting point of the IPO process.

Details:

The company hires a merchant banker (investment bank) to manage the IPO. For example, Kotak Mahindra Capital managed Hyundai Motor India’s 2024 IPO.

The DRHP includes financials, business details, management profiles, risks, and the purpose of the IPO (e.g., expansion, debt repayment). It’s filed with SEBI and stock exchanges (BSE/NSE for mainboard, BSE SME/NSE Emerge for SME IPOs).

SEBI reviews the DRHP for compliance, ensuring transparency (aligning with your RTI advocacy). If approved, the company updates it into a Red Herring Prospectus (RHP), adding pricing details.

Timeline: DRHP filing to SEBI approval takes 2–4 months. SME IPOs are faster (1–2 months) due to relaxed norms.

Investor Relevance: The DRHP/RHP is publicly available on SEBI’s website, stock exchanges, or brokers like Zerodha. Review it to assess the company’s potential, as you’ve emphasized informed decision-making over “blind following.”

Example: Swiggy’s 2024 DRHP detailed its ₹3,750 crore fresh issue and risks like ongoing losses, guiding investor decisions.

2. Roadshows and Marketing

What Happens: The company and underwriters conduct roadshows to market the IPO to institutional and retail investors, gauging demand and finalizing the price.

Details:

For mainboard IPOs, roadshows span 1–2 weeks, targeting Qualified Institutional Buyers (QIBs) and High Net-Worth Individuals (HNIs). 

SME IPOs have simpler marketing, often via brokers.

The RHP is updated with a price band (e.g., ₹100–120) for book-building IPOs or a fixed price for SME IPOs.

Anchor investors (large institutions) may subscribe a day before public bidding, signaling confidence. 

For instance, Hyundai’s 2024 IPO saw anchor investments of ₹4,200 crore.

Investor Relevance: 

Monitor roadshow buzz on platforms like Moneycontrol or X to gauge interest. High anchor participation often predicts strong retail demand, though you’ve cautioned against hype-driven decisions.

3. Investor Eligibility and Prerequisites

What You Need:

Demat Account: 

Mandatory to hold IPO shares electronically. Open one with brokers like Zerodha, Upstox, or Angel One (free or low-cost).

Trading Account: 

Optional but useful for selling shares post-listing. Most brokers link trading and demat accounts.

Bank Account with ASBA: 

Application Supported by Blocked Amount (ASBA) facility is required. Most Indian banks (e.g., HDFC, SBI) support ASBA.

PAN Card: 

Linked to your demat account for tax and identity verification.

UPI ID: 

For retail investors applying online via UPI (e.g., Google Pay, BHIM), mandatory for bids up to ₹5 lakh (increased from ₹2 lakh in 2023).

Eligibility:

Any individual over 18 with a valid PAN and demat account can apply.

Retail Individual Investors (RIIs) apply for shares worth up to ₹2 lakh (or ₹5 lakh via UPI in some cases). 

HNIs apply for higher amounts, and QIBs are institutional investors.

No minimum asset or income requirement, unlike some global markets (e.g., Fidelity’s $100,000 threshold for U.S. IPOs).

Action: 

Ensure your demat account is active, bank account has funds, and UPI is linked. Verify details to avoid application rejection, a common issue you’ve indirectly raised with transparency concerns.

4. IPO Application Process

When: 

The IPO opens for public bidding, typically for 3–5 working days (SEBI mandate). SME IPOs may extend to 10 days.

How to Apply:

Online Method (Preferred):

Log In: Access your broker’s platform (e.g., Zerodha Kite, Angel One app) or bank’s net banking (e.g., SBI YONO, ICICI iDirect).

Select IPO: Find the IPO under the “IPO” section. For example, Swiggy’s IPO was listed on BSE/NSE in November 2024.

Enter Details:

Bid Quantity: Apply for shares in multiples of the lot size (e.g., 50 shares per lot). Check the RHP for minimum/maximum lots.

Price: For book-building IPOs, choose the cut-off price (highest price in the band, e.g., ₹120) to maximize allotment chances or bid within the price band. For fixed-price IPOs (common in SME IPOs), use the set price.

UPI ID: Link your UPI for ASBA. The bid amount is blocked in your bank account, not debited.

Submit: Review and submit the application. You’ll receive a UPI mandate request on your UPI app (e.g., BHIM). Approve it within 24 hours.

Application Number: Note the unique IPO application number for tracking.

Offline Method:

Get Form: Collect a physical IPO application form from designated banks, brokers, or stock exchanges (BSE/NSE).

Fill Details: Enter PAN, demat account details, bid quantity, price, and bank account details.

Submit: Submit the form with a cheque or ASBA authorization to the bank or broker.

Acknowledgment: Receive an acknowledgment slip with the application number.

ASBA Process: The bid amount is blocked in your bank account via ASBA, ensuring funds remain available but inaccessible until allotment. If allotted fewer shares, the excess is unblocked.

Tips:

Apply on the first day to avoid last-minute technical glitches.

Use one PAN per application; multiple applications with the same PAN are rejected, addressing your transparency concerns about fair processes.

For SME IPOs, check minimum investment (often ₹1–1.5 lakh due to larger lot sizes).

Example: For Hyundai’s 2024 IPO, retail investors applied for 50-share lots at ₹1,960–2,000, using UPI via Zerodha or HDFC Bank’s ASBA.

5. Bidding and Price Finalization

What Happens: During the bidding period, investors place bids. The company and underwriters analyze demand to set the cut-off price (final issue price) for book-building IPOs.

Details:

Book-Building: Bids are collected within the price band. The cut-off price reflects demand (e.g., if oversubscribed, it’s often the upper band). For Swiggy’s 2024 IPO, the price band was ₹371–390, with the cut-off at ₹390.

Fixed Price: Common in SME IPOs, the price is pre-set (e.g., Vraj Iron’s 2024 SME IPO at ₹207). No bidding flexibility.

Oversubscription: If applications exceed shares (e.g., 5x oversubscription), shares are allotted proportionally or via lottery.

Investor Relevance: High oversubscription (common in SME IPOs) reduces allotment chances. Check subscription status daily on BSE/NSE websites or X posts for real-time sentiment, aligning with your internet-driven awareness point.

6. Share Allotment

What Happens: After bidding closes, shares are allotted within 6–10 working days (SEBI’s T+3 timeline since 2023).

Process:

The IPO registrar (e.g., Link Intime, KFin Technologies) verifies applications for correctness (PAN, demat, bank details).

Allotment Rules:

Retail Category: Minimum one lot per valid application, subject to availability. If oversubscribed (e.g., 20x), a computerized lottery decides allotments.

HNI/QIB: Proportional allotment based on bid size.

Example: In a 5x oversubscribed IPO, an application for 10 lakh shares may get 2 lakh shares.

Invalid applications (e.g., mismatched PAN, multiple bids) are rejected, ensuring fairness, which ties to your transparency advocacy.

Shares are credited to your demat account. Refunds (for unallotted or partial bids) are processed to your bank account, and ASBA funds are unblocked.

Check Allotment Status:

Visit the registrar’s website (e.g., linkintime.co.in) or BSE/NSE.

Enter your application number, PAN, or demat DP ID.

Alternatively, check via your broker’s platform (e.g., Zerodha Console).

Example: Hyundai’s 2024 IPO, oversubscribed 2.37x, allotted retail shares via lottery, credited by October 22, 2024.

7. Listing and Trading

What Happens: Shares list on the stock exchange (BSE/NSE for mainboard, BSE SME/NSE Emerge for SME IPOs) within 6 days of bidding closure (SEBI’s T+3 rule).

Details:

The listing price is determined by market demand on listing day, often differing from the issue price. SME IPOs frequently list at premiums (e.g., Vraj Iron listed at ₹240, 16% above ₹207).

Investors can sell shares immediately unless subject to a lock-in period (e.g., anchor investors, promoters). Retail investors typically face no lock-in.

Trading occurs via your broker’s platform, using your trading account.

Investor Relevance: 

Monitor listing day performance on BSE/NSE or apps like Moneycontrol. 

High volatility in SME IPOs, as you’ve noted, requires caution. 

For example, Swiggy listed at ₹420 (8% premium) but later dipped, highlighting risks.

Key Considerations for Investors

Risks:

Oversubscription reduces allotment chances, especially in SME IPOs (e.g., 50x oversubscription common).

Post-listing volatility can lead to losses, as you’ve critiqued speculative behavior.

Limited historical data for new companies makes evaluation tough, unlike global markets with stricter disclosures (e.g., U.S. SEC).

Research:

Read the RHP for financials, risks, and fund usage. Available on SEBI, BSE/NSE, or broker sites.

Check Grey Market Premium (GMP) on platforms like Chittorgarh.com for pre-listing sentiment, but don’t rely solely on hype, per your transparency stance.

Costs:

No application fees; brokers like Zerodha charge ₹20 per order for selling post-listing.

Ensure sufficient funds for ASBA to avoid rejection.

Global Comparison:

Unlike U.S. IPOs, India’s process is retail-friendly, with no high asset thresholds (e.g., Fidelity’s $100,000 requirement). However, U.S. markets offer diverse structures (e.g., SPACs, Dutch auctions), which India lacks