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Invest in IPOs

IPO
in a nutshell

An IPO (Initial Public Offering) marks a company's debut into the public market and offers investors an opportunity to invest in upcoming and growing companies at an early stage. In an IPO, the company issues shares to the general public for the first time in exchange for fresh capital from individual and institutional investors. A company’s IPO not only offers the company an opportunity to raise fresh capital for growth but also offers an exit opportunity for the early stage investors and the promoters of the company. During an IPO, a specific %age of shares is reserved for retail investors, HNIs and Institutional Investors as mandated by SEBI. The issue price of the IPO can either be fixed or can be determined based on the bids from the investors in case of a book built issue.

Why should
you invest in an IPO?

Access to quality companies at an early stage

Invest in companies with high growth potential before they are available in the stock market.

Opportunity to earn listing gains

High demand for IPO stocks in the secondary market leads to a surge in the stock price resulting in listing gains for IPO allottees

Higher returns on capital in shorter time duration

IPO stocks carry the potential to multiply your investment in a shorter time frame as compared to traditional long-term stock investments

Profit from limited supply of securities

Limited supply of stocks through an IPO pushes investors to pay a higher price resulting in gains for IPO allottees.

Why invest in IPOs
with Motilal Oswal?

  • Skip the queue with Pre-IPO applications
  • Single click, UPI based Application
  • Detailed IPO research and recommendations for all IPOs
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Trading Terminal
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Complete Digital Process

Steps to Open a Demat Account
Step 1
Enter your name and mobile number & enter the OTP received on the registered number
Step 2
Enter your details such as Date of Birth, PAN number, Email Address and Bank account details
Step 3
Complete Aadhaar KYC and mandatory E-Sign and you are all set to invest and trade
Documents required to open a demat account
PAN Card
Aadhaar Card

How do
IPOs work?

An IPO, or Initial Public Offering, is the process through which a private company goes public by selling its shares to the general public. IPO allows companies to raise capital and become publicly traded on a stock exchange, enabling investors to buy and sell its shares.

Companies launch IPOs primarily to access additional capital for various purposes, such as expanding operations, paying off debt, or funding research and development

An IPO can either have fresh shares being issued to the public or can have an offer for sale of existing shares by the early stage investors or can be a combination of both. While fresh issue of shares allows the company to raise fresh capital for the company's growth, an offer for sale provides an exit to the early stage investors like private equity funds, angel investors along with the promoters of the company.

In India, IPO share allocation is typically divided among different categories of investors, with specific reservation percentages for each category. The primary categories for IPO share allocation in India are:

Qualified Institutional Buyers (QIBs):
  • QIBs include institutions like mutual funds , foreign institutional investors (FIIs), insurance companies, and banks.
  • These investors are considered sophisticated and professional, and they typically receive a significant portion of the IPO shares.
  • The percentage reserved for QIBs varies but not more than 50% of the total issue size. The allocation is made based on the demand from this category.
High Net Worth Individuals (HNIs) / Non-Institutional Investors:
  • HNIs, also known as Non-Institutional Investors, are individual investors who invest more than Rs 2 Lakh in the IPO.
  • This category includes wealthy individuals, corporate bodies, and high-net-worth entities.
  • HNIs typically receive a fixed percentage of the IPO shares, but not less than 15% of the total issue size.
  • The allocation is determined through a fair lottery process based on the demand from HNIs
Retail Investors:
  • Retail investors are individual investors who invest less than Rs 2 Lakh in the IPO.
  • This category aims to encourage widespread public participation in IPOs.
  • Retail investors receive a specific reservation percentage, but not less than 35%of the total issue size.
  • The allocation to retail investors is often done through a lottery system if the demand exceeds the reserved portion.

The allocation process is designed to ensure a fair and balanced distribution of shares among different types of investors. The goal is to prevent any single category from dominating the allocation, which helps in promoting a diverse investor base and maintaining market stability.

What are the steps to invest
in an upcoming IPO?

To invest in an upcoming IPO, it is mandatory that you open a DEMAT Account with a registered broker.

While you can invest in IPOs both online and offline, there are certain prerequisites you need to be aware of:

Investing in IPO Online:

Before you plan to invest in upcoming IPOs online, it is essential that you hold a Demat Account. You are also required to have a UPI-linked Bank Account, which facilitates easier and faster application.

Open a Demat Account

To invest in IPOs, you need a Demat account. If you don't already have one, you can open an account with a stock broker or a bank.

Bank Account

You'll also need a linked bank account to apply for IPOs, as your refunds and allotment will be credited to this account.

Get UPI (Unified Payments Interface)

The application process for IPOs in India typically requires UPI. Ensure you have a UPI ID linked to your bank account. You can set this up through your bank's mobile app.

Choose the IPO

While there are multiple companies issuing IPOs at the same time, it is on you to choose which IPO application interests you the most. Carry out a background check on the company issuing IPO - such as its financial health, management, future prospects and industry trends.

Fill in IPO Application

When an IPO is announced, you'll need to fill in the IPO application form provided by your broker. This form can usually be accessed through your trading account's dashboard. You can apply to an IPO in just 1 click through Motilal Oswal’s Rise app.

Bid Details

Enter the details of your IPO bid, including the number of lots you want to apply for and the price at which you're willing to bid. You can also choose to bid at the cut-off price.

UPI Mandate

Authenticate the UPI mandate for the IPO application. This will authorize the bank to block funds in your bank account.

Pay for IPO Shares

The funds for your bid will be blocked in your bank account, and if you're allotted shares, the blocked amount will be used to pay for them. If you're not allotted any shares, the blocked amount will be released.

Allotment and Refunds

After the IPO closes, you'll have to wait for the allotment process. If you're allotted shares, they will be credited to your Demat account. If not, the blocked funds will be released. The allotment and refund process for IPOs usually takes less than 5 days.

Choosing to invest in IPOs online gives you the benefit of pre-applying for the IPO. Pre-IPO application means submitting your bids for the IPOs before the actual opening date.

Investing in IPOs Offline:

Applying offline for upcoming Initial Public Offerings (IPOs) in India can be done through physical applications submitted to designated banks or financial institutions. Here are the steps for applying for IPOs through offline mode:

Collect the IPO Application Form

You can obtain the physical IPO application forms from designated branches of banks, financial institutions, or registered stockbrokers. These forms are typically made available when an IPO is announced.

Fill in the Application Form

Carefully fill in the application form with all the required details. Make sure to provide accurate information, including your Demat account details and bank account information.

Attach Required Documents

You are required to attach documents such as a copy of your PAN card, proof of address, and a canceled check from your bank account to fill the IPO application forms. Ensure you have these documents ready.

Payment Method

You will need to make the payment for the IPO shares you are applying for. This is typically done through a check or demand draft drawn in favor of the 'Registrar of the IPO.' The application form will specify the payment details.

Submit the Application

Take the completed application form along with the payment instrument and any required documents to the designated collection centers, which are usually specified in the IPO prospectus. These centers can be bank branches or offices of registrars to the issue.

Acknowledgment Slip

Upon submission, you should receive an acknowledgment slip. This slip serves as proof of your application and contains important details, so keep it safe.

Allotment and Refunds

After the IPO subscription period ends, the allotment process takes place. If you are allotted shares, they will be credited to your Demat account. If you are not allotted any shares, you will receive a refund through a check or bank transfer, as per the information provided in your application form.

Why does a company
launch an IPO?

Companies launch IPO to raise funds for business operations, expansion, debt reduction, and attract retail shareholders. IPOs also grant access to institutional investors, enhances branding, credibility, and increases opportunities for debt financing.

Raise capital

One of the primary motivations behind an IPO is raising capital. By going public, a company can access a broader pool of potential investors, which can result in a substantial injection of funds. This capital can be used for various purposes such as funding expansion, research and development, debt reduction, or acquisitions.

Liquidity for Existing Shareholders

An IPO allows early investors, founders, and employees who hold equity in the company to realize the value of their investments. They can sell their shares in the public markets, converting their ownership into cash.

Brand Visibility

Going public can enhance a company's brand and visibility. It provides recognition and credibility in the business world, which can be beneficial for attracting customers, partners, and employees.

Employee Incentives

Publicly traded companies can attract and retain talent by offering stock-based incentives like stock options to employees. This can be an effective way to align employee interests with the company's performance.

Access to the Public Markets

Going public provides access to the broader investment community. It allows the company to continuously raise capital in the future by issuing additional shares or debt securities.

Exit Strategy

For early investors and venture capitalists, an IPO serves as an exit strategy. They can divest their holdings and realize returns on their investments.

Competitive Advantage

Publicly traded status can provide a competitive advantage. It allows the company to use its stock for strategic partnerships, attract better financing terms, and have more visibility in the market.

Valuation Benchmark

Publicly traded companies often have a more visible and transparent valuation, which can provide a benchmark for the company's worth.

Attracting Institutional Investors

Being public can attract institutional investors, such as mutual funds and pension funds, which can help stabilize the stock price and increase demand for the company's shares.

Enhanced Access to Debt Financing

Public companies may find it easier to secure favorable terms on debt financing due to their improved creditworthiness and transparency.

What factors should I consider before
applying for an upcoming IPO?

Before investing in an upcoming Initial Public Offering (IPO), it's essential to carefully consider several factors to make an informed investment decision. Here are some key factors to evaluate:

Company's Business Model and Prospects

Examine the company's business model, its products or services, and its growth potential. Understand the industry it operates in and its competitive positioning. Consider whether the company's offerings align with your investment goals.

Financial Health

Review the company's financial statements, including revenue, profits, and cash flow. Assess its historical performance and growth trends. Look for encouraging signs of financial stability and sustainability.

Management Team

Evaluate the experience and track record of the company's management team, including the CEO and key executives. Strong leadership is often crucial for a company's success.

Use of Proceeds

Understand how the funds raised through the IPO will be used. Ensure the company has a clear plan for utilizing the capital to support its growth and development.

Competitive Landscape

Analyze the competitive environment and the company's position within it. Consider how the company plans to differentiate itself and capture market share.

Risks and Challenges

Identify and assess the risks associated with the company's business, industry, and market conditions. Look for potential challenges and how the company plans to mitigate them.

Valuation

Evaluate the IPO's valuation. Compare the offer price to the company's financial metrics and industry benchmarks. Determine whether the IPO is reasonably priced or overvalued.

Market Conditions

Consider the broader market conditions, economic factors, and investor sentiment. IPOs can be influenced by market volatility and timing, so it's important to assess the overall investment climate.

Lock-Up Period

Understand any lock-up agreements that restrict insiders and early investors from selling their shares immediately after the IPO. The expiration of lock-up periods can impact share prices.

Regulatory and Legal Compliance

Ensure the company complies with regulatory requirements and has a clear legal framework. Investigate any past or pending legal issues that may affect the company.

Underwriters and IPO Track Record

Assess the reputation and credibility of the underwriters handling the IPO. Research their track record in bringing companies public successfully.

Investment Horizon

Determine your investment horizon and risk tolerance. Consider whether you're looking for a short-term trading opportunity or a long-term investment.