IPO (Initial Public Offering) is a process through which a private company raises capital by offering its shares to the public for the first time. The company becomes a publicly traded entity through an IPO.
In an IPO, a company generally works with investment banks to underwrite and sell its shares to institutional and retail investors. Once the IPO is complete, the shares are traded on a public stock exchange, allowing anyone to buy or sell them.
Role of SEBI
The IPO process is regulated by Securities and Exchange Board of India (SEBI) to protect investors’ interests. SEBI has the power to approve or reject IPO applications, and it sets the guidelines and regulations for companies to follow during the IPO process.
SEBI also ensures that companies provide accurate and transparent information to investors through their prospectus and other disclosures.
How to Make a Profit From IPO
There are two ways to make a profit from IPOs:
- Profit at the Time of Stock Listing: If the IPO is oversubscribed, there is a high chance of listing gains, where the share price of the company increases significantly on the first day of trading. You can make a quick profit by selling your shares on the listing day.
- Long Term Profit through Price Appreciation: You can hold onto the shares for the long term and benefit from the company’s growth, resulting in higher share prices and dividends.
How to Invest in IPO Online in India
You need to open a demat account to invest in IPOs. However, if you plan to sell those IPO shares in the secondary market later, you will require both demat and trading account.
You can apply IPO online in India through two ways –
- Through ASBA
- Through UPI
#1. Apply For IPO Through ASBA
ASBA or Application Supported by Blocked Amount, is a payment mechanism that allows you to apply for an IPO without transferring funds from your bank account.
The application amount is only blocked in your bank account until the allotment of shares is made. The blocked amount continues to earn interest until the allotment process is complete. The funds are only debited from your account if the shares are allotted to you.
Here are the steps to follow apply for IPO through ASBA:
Step #1. Log in to your net banking account or visit the bank branch where you have an account that supports ASBA. You can also apply the IPO through HDFC Bank netbanking.
Step #2. Select the IPO you want to apply for.
Step #3. Enter the details such as the quantity and price.
Step #4. Authorize the bank to block the necessary funds in your account for the IPO application.
Step #5. After the IPO allotment, the blocked amount will be debited from your account, and the remaining funds will be released.
#2. Apply for IPO Through UPI
In this method, you can apply for an IPOs directly through a stockbroker without approaching the banks. You can also invest in IPO through stockbrokers like Groww, Upstox and Zerodha using your UPI ID.
Let’s take an example of how to apply for an IPO through Zerodha using UPI. You can follow the same process to apply for an IPO via UPI with other stockbrokers.
Apply For IPO Through Zerodha Using UPI
You can submit the IPO application through Zerodha from Kite web or Kite app using any UPI application. There are no charges to apply for an IPO through Zerodha.
#1. Apply IPO via Zerodha Kite app
You can apply for an IPO from the Zerodha Kite app.
Follow these steps:
Step #1. Log in to your Zerodha Kite app and Click on “Orders>IPO.”
Step #2. Choose the IPO you want to apply for from the list of ongoing IPOs and click on “Apply.”
Step #3. Tap “Apply” again and enter your UPI ID.
Step #4. You can enter or edit the “Quantity” and the “Price” of the IPO.
Step #5. Tick the undertaking box and swipe the “Submit” button.
Step #6. Go to your UPI app and accept the mandate.
#2. Apply IPO via Zerodha Kite Web
Follow these steps to apply for an IPO from the Kite web:
Step #1. Log in to your Zerodha Kite web using your credentials.
Step #2. Click on “Orders>IPO.”
Step #3. Select the IPO from the list of ongoing IPOs and click on “Apply.”
Step #4. Select investor type such as individual investor.
Step #5. Enter your UPI ID.
Step #6. Enter the “Quantity and Price”. The quantity should be a multiple of the lot size, and the price entered should be within the issue price range.
Step #7. Click on the undertaking checkbox and click on “Submit.”
Step #8. Accept the mandate on the UPI app to complete the IPO application process. The UPI mandate can be accepted until 5 PM on the closing day of the IPO.
After applying for an IPO, the exchange will send an SMS confirming the application by the end of the day. You can verify the bid details by visiting the NSE page one day after applying for the IPO.
You can check the IPO allotment status in Zerodha through visiting the Registrar, NSE and BSE portal.
Place IPO orders Timings
You can place the IPO orders anytime between 10 AM on the issue opening day and 4:30 PM on the issue closing day. You can place up to 3 bids in the IPO application. Each bid should be within the price range, and the quantity in multiple of the lot size. The highest amount among the 3 bids will be blocked.
How to Analyze IPO Before Bidding
You need to analyze IPOs before bidding to make an informed investment decision.
Here are some factors to consider:
- Company fundamentals: You need to analyze the company business model including its financial statements and growth prospects. Check the company’s revenue, profitability, and cash flow. Read the company’s prospectus to learn about its industry, competitors, and management team.
- Valuation: Determine the company’s valuation by comparing it with its peers in the same industry. Analyze the price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, and price-to-book (P/B) ratio to assess the company’s valuation.
- Market demand: You can check the demand for the IPO in the market. If the demand is high, it could indicate a successful IPO.
- Use of proceeds: Analyze the use of proceeds mentioned in the IPO prospectus. Check if the funds will be used for growth or to pay off debts.
- Risk factors: You need to assess the risk factors mentioned in the IPO prospectus. Check if there are any legal or regulatory issues that could impact the company’s performance.
- Underwriters: Research the underwriters for the IPO. Look for reputable and experienced underwriters who have a track record of successful IPOs.
If you do not get allotment in the IPO, the blocked amount is released, and you can use it for other investments.
No, you cannot apply for an IPO using multiple applications or the same demat account as well. It is a violation of SEBI’s rules.
You can sell the IPOs in the secondary market, only after the IPO listing. IPOs are listed around 3 days after the allotment of shares.
You can sell your IPO shares in the secondary market through your broker or by placing a sell order through your trading account.
The allotment of shares is done through a lottery system, where investors are allocated shares randomly, subject to the oversubscription of the IPO.
Yes, you can apply for IPOs in India if you meet certain eligibility criteria. To apply for an IPO, you need to have a demat account and a PAN card.
You can apply for IPOs through ASBA (Application Supported by Blocked Amount) or UPI (Unified Payments Interface) enabled platforms such as stockbrokers or investment apps.
You need to follow the application process as specified by the issuer and the stock exchange. It is important to conduct thorough research on the company and evaluate the risks involved before applying for an IPO.
Investing in IPOs comes with risks, such as
- The company underperforming or failing
- The risk of not getting allotment
- The share price went down after listing.
- The share may be overvalued.