IPOs Explained: How an IPO Works

After the lunch rush, Maya's new buyer, who owns 10% of the restaurant, shows her the day's headline: Jio Platforms: show the note on Jio Platforms is selling shares to the public. Half joking, she asks whether the restaurant might list one day, so she could sell her piece to strangers on any trading day instead of looking for a buyer over coffee. Maya laughs, but it is a real question: why does any business go public?

The two reasons are already in Maya's own restaurant. If she opened the second outlet she plans by selling new pieces of the restaurant, the money would come in for the restaurant. If her new buyer sold her 10% to someone else, the money would go to her, not to the restaurant. A listed company does the same, with thousands of buyers at once.

Reason one: money for the business. A business can pay for growth in four ways: its own profits, a loan, a few private investors, or the public. Jio Platforms, the company behind the Jio mobile network, used the middle two first. In 2020 it sold about a third of itself to outside investors, Meta and Google among them, for about ₹1.52 lakh crore, and its main company, Reliance Jio Infocomm, borrowed. The public can supply far more than a few investors: Jio's IPO raised about ₹30188 crore: show the note on Jio's new money, October 2026 (about $3.2 billion) in new money, and the company said ₹27500 crore of it would repay borrowings early.

Reason two: a way out for the owners. Founders, early investors and parent companies can otherwise sell only privately, one buyer at a time. Listing means a stock exchange accepts the shares for trading, so they can be sold to anyone on any trading day. Jio's own offer document names the benefit: the "creation of a public market" for its shares.

What the company gives in return: a piece of itself to strangers (2.93% of Jio went to its new owners); its results every three months and every important event, published to everyone at once; and rules on trading by insiders, the directors and officials who know what the public does not. Listing is a trade, and both sides of it are real.

Two kinds of shares can be sold in an IPO. New shares, created by the company for the issue, are a fresh issue: the money goes to the company. Existing shares that current owners choose to sell are an offer for sale (OFS): the money goes to those owners, and the company receives none of it. Many IPOs mix the two.

Jio Platforms, October 2026: all new. 27 crore new shares at ₹1119 brought the company about ₹30188 crore, after a ₹54 discount a share for its employees. ₹27500 crore of it, about 91%, prepays the borrowings of Reliance Jio Infocomm, the company that runs the Jio network; the rest is for general purposes and the issue's costs.

Swiggy, November 2024: both, as What is the stock market? showed. ₹4499 crore of new shares for Swiggy, and ₹6828 crore of existing shares for the owners selling them. Now look at who those owners were. The largest seller, the investment group Prosus, received about ₹4255 crore, close to what Swiggy itself got. An early backer, Accel, had paid ₹11.17 a share on average and sold at ₹390, about 35 times its cost.

Hyundai Motor India: show the note on Hyundai Motor India, October 2024: all existing. Its Korean parent, Hyundai Motor Company, sold 14.22 crore of its shares for ₹27870 crore (about $3.3 billion). The Indian company received nothing.

What happens to ownership? New shares make the pie bigger. Jio's 893.90 crore shares became 920.90 crore; Reliance Industries, its parent, kept the same 593.78 crore shares, so its stake fell from 66.43% to 64.48%. This is dilution: show the note on Dilution: each owner's slice is smaller because there are more slices. An offer for sale only changes who holds the slices; Hyundai's total stayed the same.

How common is each? In 2025-26, about six of every ten rupees raised by main-board IPOs in India went to selling shareholders (61%, by Grant Thornton Bharat's count; 58% with small-company issues included, from SEBI's annual report). Every offer document says which kind it is, and what the new money is for, in a section called Objects of the Offer. Neither kind is good or bad in itself; it tells you whom you are paying.

An IPO is a short journey with fixed stops, and at each stop someone answers for what happens. Jio Platforms' took about four months of paperwork and ten days of action.

The draft. The company, with its book-running lead managers: show the note on Book-running lead manager, writes the offer document. Lead managers are investment banks hired to prepare the issue, set its price range with the company and sell it; Jio had 19, Kotak Mahindra Capital first. In June 2026 Jio filed its draft with SEBI, India's market regulator, and the exchanges. The company answers for every word: its cover says it "accepts responsibility" for the document.

The review. SEBI may ask for changes within 30 days of the draft. It checks what is disclosed, not whether the business or the price is good: the cover of every red herring prospectus (the offer document you bid on), Swiggy's included, says the shares "have not been recommended or approved" by SEBI. Jio's go-ahead was reported on 28 August 2026. (In the United States, too, the regulator's review "does not represent an approval of the merits".)

The price band and the bids. On Wednesday 14 October Jio filed its red herring prospectus with its price range. On Monday 19 October large institutions, the anchor investors, bid first; Tuesday 20 was a market holiday; and from Wednesday 21 to Friday 23 October anyone could bid.

The finish. Friday 23 October was T, the closing day, and India's T+3 rule counts three working days from it. On Monday 26 (T+1) the registrar: show the note on Registrar, KFin Technologies for Jio, the firm that keeps the applications, worked out who gets shares, and the exchange approved it. On Tuesday 27 (T+2) money was taken for allotted shares, every other block was lifted, and the shares reached demat accounts, the electronic accounts that hold shares. On Wednesday 28 (T+3) trading started on NSE and BSE. The weekend did not count.

Each name on the road has one job. None of them is your adviser, and none of them promises a price. The rest of this lesson walks the same road from the bidder's side.

The offer document comes in three versions, and the clearest way to tell them apart is one line: the price.

The DRHP, the draft red herring prospectus, is the first full version, filed with SEBI and the exchanges: the business, its accounts, its risks and the planned offer, but no price. Jio's was filed in June 2026.

The RHP, the red herring prospectus, is the updated version you bid on. It carries the price band but not the final price. Jio's is dated 14 October 2026 and runs past 500 pages; its band was announced the same day.

The prospectus is filed once the price is fixed, after bidding closes. By SEBI's rules it "shall contain only one price": for Jio, ₹1119.

Five hundred pages are read by questions, not by pages. In Jio's RHP: who gets the money, and for what? Objects of the Issue (page 116). What could go wrong? Risk Factors (from page 30). How does the company justify its price? Basis for Issue Price (page 126). Who controls it? Our Promoter (page 313), the owner in control. Does the business make money? The restated financial information, where past years are shown on one consistent basis.

A short version first. Since SEBI's circular of 24 May 2024, every main-board IPO also publishes audio-visual summaries of its draft and its RHP, about ten minutes each, in English and Hindi, and an abridged prospectus, a short version that goes with the application. Jio's IPO page lists them all. They help you find your way; the RHP is where you check. Always read the latest version and any addendum: show the note on Addendum, an official update to a filed document.

A share's price depends on how many pieces the company is cut into. The price of one share × the number of shares = the price of the whole company, its market value (market cap works it out in full). The question is what that price buys.

One yardstick is the price-to-earnings ratio: show the note on Price-to-earnings ratio (P/E), or P/E: the whole company's value divided by its yearly profit, roughly how many years of today's profit the price pays for.

Jio at ₹1119: 920.90 crore shares made the whole company worth about ₹10.30 lakh crore. Its profit for FY26, April 2025 to March 2026, was ₹30049 crore, so the price paid for about 34 years: show the note on Jio's price in years of profit of that profit. Whether 34 is high depends on how fast the profit grows and what similar companies cost.

Swiggy at ₹390, about a third of Jio's price: 223.84 crore shares made it worth about ₹87300 crore. But it had made a loss in each of the three years before its IPO, so there was no profit to divide by and no P/E at all. A lower price per share bought a business that was not yet making money.

Face value is not value either. Jio's shares have a face value of ₹10 and sold at ₹1119. Face value is a figure in the company's books, nothing more.

Every main-board IPO's price advertisement in India carries a box called "Risks to Investors" with these numbers: the P/E of the company and of similar listed companies, three years' return on the owners' money, and what the selling shareholders paid for their shares. Burger King India's, in December 2020, said its P/E was "not ascertainable as EPS is negative": its earnings per share (EPS), profit divided by the number of shares, was below zero because it had made a loss. What the box cannot tell you is what the price will do next.

You bid inside a price band, in whole lots, either at a price you choose or at "cut-off".

The price band is the range you may bid in, set by the company and its lead managers: the floor and the cap. In India the cap may be at most 120% and at least 105% of the floor, and the band must be announced at least two working days before bidding opens. Jio's was ₹1065 to ₹1119, its cap 105.07%: show the note on Jio's cap over its floor of its floor.

A lot is the smallest bundle of shares you can bid for, and you bid in whole lots; one lot must cost ₹10000 to ₹15000. Jio's lot was 12 shares, ₹13428 at the cap. Your amount also decides your group: up to ₹2 lakh (200000 rupees) is retail. 14 lots of Jio cost ₹187992; 15 lots, ₹201420, would put you in the next group.

Cut-off is a box that individuals bidding up to ₹2 lakh can tick, meaning "I'll pay the final price, whatever it is". The bank holds the amount at the cap. It gives no discount and no priority, and bids above ₹2 lakh must name a price.

How the final price is found: for three days every bid is collected, price by price, a process called book building: show the note on Book building. After the close, the company and its lead managers fix the final price from that demand. Jio's was ₹1119, the top. Of the 438.44 crore shares bid, 91.8% were bid at ₹1119 and 8.1% at cut-off; all 54 lower prices together drew 0.07%. In a busy issue the price ends at the top, and a bid below it does not count.

Around the world it can differ: in the United States the company and its bankers set the price the evening before trading starts, and few individuals get shares at that price.

A main-board IPO in India splits its shares into portions before anyone bids, and every bid competes only inside its own portion.

Qualified institutional buyers (QIBs) are mutual funds (which pool and invest many savers' money), banks, insurers, foreign investment funds and the like; for a company with a record of profits they get at most 50% of the shares. Inside that portion, anchor investors: show the note on Anchor investor, large institutions, bid one working day before the issue opens (Jio's took 7.25 crore shares, ₹8109.85 crore: show the note on Jio's anchor book, Mon 19 Oct 2026, on Monday 19 October); anchors, NIIs and the allotment maths have their own lesson.

Non-institutional investors (NIIs), individuals and others bidding above ₹2 lakh, get at least 15%. Retail individual investors, bidding up to ₹2 lakh, get at least 35%. Some issues also keep shares aside for employees (Jio's got ₹54 off a share) or for the parent company's own shareholders (Reliance Industries' shareholders, up to ₹2 lakh each).

Jio's 27 crore shares were split this way: institutions 12.15 crore (7.25 crore of them to the anchors), larger bidders 3.64 crore, retail 8.50 crore, Reliance shareholders 2.23 crore and employees 0.47 crore.

A company without the record of profits lists under different rules: at least 75% of the shares to institutions and at most 10% to retail. Burger King India listed this way in 2020, so its retail portion was much smaller.

Around the world it can differ: the United States has no retail portion, and banks give most IPO shares to institutions and wealthy clients.

Applying needs three accounts: a bank account, a demat account that holds shares, and a trading account with a broker, the firm that sends your orders. Lesson 15 opens them step by step; here is only the walk.

The idea first. In India you do not send money to the company when you apply. Your bank freezes the amount in your own account, and it is taken only if you are given shares. The freeze is called ASBA, an "application supported by blocked amount", and most individuals approve it on their phone with UPI, India's bank-to-bank payment system.

Say Maya, once her accounts are open, rehearses an application for one lot of Jio at cut-off, from her own bank account; say it holds ₹1 lakh. In her broker's app she chooses the IPO and her group, retail, then enters 1 lot and ticks cut-off; the app shows ₹13428, the amount at the cap.

A request then appears in her UPI app, a mandate: show the note on UPI mandate: her permission for the bank to block the amount now and take it later only if shares come. She checks the IPO's name, the amount and the account, and approves it with her UPI PIN, which only she should ever type. Her bank shows ₹86572 available: show the note on Maya's available balance (illustration) and ₹13428 on hold. It is still her money; nothing has gone to Jio. The result comes after the close.

What can go wrong. Applications paid from someone else's account, a parent's or a spouse's, are liable for rejection, and the PAN, India's tax number, must match on the demat and bank accounts. A mandate approved after the deadline does not count: 5 pm on the closing day in SEBI's general timetable (Jio's documents gave 7 pm), and brokers may set earlier times. A second application under the same PAN in the same group is thrown out. And UPI works for bids up to ₹5 lakh, but retail still ends at ₹2 lakh.

"Bid placed", "mandate approved" and "amount blocked" are three different messages, and none of them means shares. The exchange's record of your bid is the one that counts; keep its confirmation.

"Times subscribed" is the number of shares bid for divided by the shares on offer, for each portion, at one moment. Jio, by NSE's count at 7 pm on 23 October, anchors left out: 22.19 times overall; institutions 70.55 times; larger bidders 14.00; Reliance shareholders 7.60; employees 2.93; retail 2.72.

Ask three questions before you quote a number: which portion, divided by what, and at what time? Counted against all 27 crore shares, anchors included, the same bids read about 15.6 times: show the note on The same bids, against all 27 crore shares; at 7:28 pm a widely quoted table said 21.36. Your own portion's number is the one that matters to you.

What it tells you is how crowded your portion was at that price. Busy books have often ended day one higher: of five issues whose bids are on record, the three with the most (Burger King India about 156 times, Jio 22.19, Swiggy 3.59) closed their first day higher, and the two with the fewest (the Life Insurance Corporation of India, LIC, 2.95, and Hyundai 2.37) closed it lower.

What it cannot tell you: whether the business is good, whether the price is fair, or what comes after listing. Hyundai showed it on day one; Burger King India shows it over the years. It drew bids for about 156 times its shares in December 2020, more than doubled on its first day, and years later closed below its ₹60 issue price, at ₹57.26 on 30 March 2026.

While bids are open, some websites also print a guess at the listing price from unofficial trading before the shares list. Grey-market prices are unofficial and unregulated; they are not a guide.

A queue outside Maya's restaurant tells her it is busy tonight. It does not tell her the burgers are good, or that it will be busy next year.

The rule for retail: each successful applicant gets at least one lot, as far as the shares allow, and anything left is shared out in proportion. When there are more applicants than lots, a computerised draw decides who gets one. Jio's retail portion of 85037327 shares made at most 7086443 one-lot slots, and about 1.39 crore applications came in across all its portions.

A real draw shows the rule at work. In Burger King India's IPO of December 2020, the retail portion of 13500000 shares made 54000 lots of 250 shares, for 1974928 valid applications. The basis of allotment: show the note on Basis of allotment, the registrar's approved working of who gets what, gave one lot to 7 in every 256: show the note on Burger King India's retail draw, Dec 2020 applicants, about 1 in 37, in every row: whether they had applied for one lot, ₹15000, or thirteen, ₹195000. More lots did not buy more chances.

Then the "refund", which is really a block lifted. Say the draw picks Maya: on T+2 her ₹13428 is taken, and 12 Jio shares appear in her demat account, which she can sell only from listing day. Say it does not: on T+2 the hold on her ₹13428 is lifted. Nothing was ever paid, so nothing is refunded, though most people still call it a refund. She can check with the registrar (KFin, for Jio: choose the IPO, then her application number, demat account or PAN), her bank statement and her demat account.

Listing day. A special auction from 9:00 to 9:45 am collects orders and sets the opening price, and ordinary trading starts at 10:00 (market timings explains the auction). Nobody promises it opens above the issue price.

Jio opened at ₹1358.00, traded between ₹1357.00 and ₹1423.90, and closed at ₹1417.50, 26.68% above ₹1119; 17.73 crore shares changed hands. Hyundai Motor India closed its first day at ₹1819.60, 7.16% below its ₹1960; Paytm, 27.40% below its ₹2150.

After day one the price follows the business, in both directions. Many allottees sell fast: a SEBI study of 144 IPOs found that investors sold about 54% of the shares allotted to them, by value, within a week of listing. Then the lock-ins end, on a timetable: anchors may sell half their shares after 30 days and the rest after 90; other owners from before the IPO, after six months. An unlock allows a sale; it does not mean one. And the company now reports every quarter, for anyone to read. Who all those first-day buyers and sellers were, and who else takes part in the market, is the next lesson, market participants.