Initial Public Offering (IPO):

When a company decides to go public and raise money from common investors, it does so through an IPO. In recent years, IPOs of companies like Zomato, LIC, Paytm, and Nykaa have gained massive attention in India. Some gave excellent listing gains, while others disappointed investors.

Let’s explore what an IPO is, how it works, and whether you should invest in one.

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🔹 What is an IPO?

An Initial Public Offering (IPO) is when a private company offers its shares to the public for the first time and gets listed on the stock exchange (NSE/BSE in India).

Once listed, anyone can buy and sell these shares in the stock market.

• Before IPO → Ownership lies with founders, promoters, and private investors.
• After IPO → Company becomes “publicly traded,” and small investors can also own a piece of it.

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🔹 Why Do Companies Launch IPOs?

Companies raise money through IPOs for various reasons:

• Business Expansion – To set up new plants, increase production, or enter new markets.
• Debt Repayment – To pay off existing loans and strengthen their balance sheet.
• Liquidity for Investors – Early investors (like venture capitalists or private equity firms) can sell their stake and book profits.
• Brand Visibility – Being listed on a stock exchange increases credibility and attracts new customers.

Example: Zomato IPO (2021) helped the company raise funds for expansion while giving early investors an exit.

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🔹 IPO Process in India (Step by Step)

1. Appointment of Merchant Bankers – Company hires investment banks to manage the IPO.
2. Filing DRHP with SEBI – Draft Red Herring Prospectus (DRHP) explains the company’s financials, risks, and objectives.
3. SEBI Approval – India’s market regulator (SEBI) reviews and approves the IPO.
4. Price Band & Lot Size – Company announces the issue price range and minimum shares (lot) investors can apply for.
5. IPO Opening – Investors can apply via UPI/Demat account during the subscription window (usually 3 days).
6. Allotment of Shares – Based on demand, shares are allotted. If oversubscribed, allotment is done via lottery system.
7. Listing on Stock Exchanges – Shares start trading on NSE/BSE, and investors can buy/sell freely.

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🔹 Types of IPO Investors

• Retail Investors – Individual investors (can invest up to ₹2 lakh per IPO).
• Non-Institutional Investors (NIIs/HNIs) – High Net-Worth Individuals (HNI category).
• Qualified Institutional Buyers (QIBs) – Mutual funds, banks, insurance companies, FIIs.

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🔹 Advantages of IPO Investment

✅ Listing Gains – IPOs often list at a premium, giving quick profits.
✅ Early Entry – Investors can buy into promising companies before they grow big.
✅ Transparency – Companies disclose financials in DRHP, allowing better decision-making.
✅ Long-Term Wealth Creation – Strong businesses can deliver huge returns over years (e.g., Infosys, TCS).

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🔹 Risks of IPO Investment

⚠️ Overvaluation – Some IPOs are priced too high compared to actual performance.
⚠️ Listing Loss – Shares may list below issue price, leading to instant losses (e.g., Paytm IPO).
⚠️ Market Conditions – IPO performance depends on overall market sentiment.
⚠️ Unproven Business Models – Startups may have uncertain profitability.

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🔹 Real Examples (India)

• Zomato (2021) – Listed at a strong premium, making investors money.
• Paytm (2021) – Biggest Indian IPO but listed at a huge discount, causing losses.
• LIC (2022) – Mixed performance; listed below issue price but recovered later.

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🔹 How Can You Apply for an IPO?

1. Open a Demat & Trading Account (e.g., Zerodha, Fyers, Upstox).
2. Log in and go to the IPO section.
3. Choose the IPO → Enter bid details (lot size, price).
4. Complete payment using UPI mandate.
5. Wait for allotment results.

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🔹 Should You Invest in IPOs?

The answer depends on your risk appetite and research.

• If the company has strong fundamentals, good growth potential, and reasonable valuation, IPOs can create wealth.
• If it’s overhyped or loss-making, it can lead to disappointment.

👉 Golden Rule: Always read the DRHP, check peer valuation, and avoid chasing IPOs just for hype.

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🔹 Final Thoughts

An IPO is a great way for companies to raise money and for investors to participate in their growth journey. However, not every IPO is a goldmine. Smart investors study carefully before applying.

Remember: In IPOs, patience and research often matter more than luck.

📌Disclaimer – At BullBearFin, we don’t provide trading tips but focus on helping you understand financial markets better so you can make informed decisions.

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