How an IPO Works in India: Price Bands, ASBA, UPI, and Allotment

An initial public offering is the first time a company offers its shares to the public and lists them on a stock exchange. In India, applying is now easy: you choose the IPO in your broker's app, pick a quantity and price, and approve a request on your UPI app. But IPOs generate more excitement and more confusion than almost any other part of the market. Knowing how the process actually works helps you read the documents, understand allotment, and keep your expectations realistic.

Why companies go public

Companies list for several reasons: to raise new money for growth or to repay debt, to let existing investors such as founders and early backers sell part of their holdings, and to create a market price and liquidity for their shares. An IPO can involve a fresh issue, where new shares are created and the money goes to the company, an offer for sale, where existing shareholders sell and the money goes to them, or both. The offer document tells you which, and the split matters: money raised through an offer for sale does not fund the business.

The offer document: DRHP and RHP

Before an IPO, the company files a draft red herring prospectus with SEBI. It describes the business, its finances, risks, management, legal proceedings, and how the money will be used. After SEBI's observations, the company files a red herring prospectus that includes the issue dates and, closer to opening, the price band. These documents are long, but a few sections are worth reading for any IPO you consider: the risk factors, the objects of the issue, the financial statements, and details of promoter holdings and pledges.

Book building and the price band

Most Indian IPOs use book building. Instead of a fixed price, the company announces a price band, for example ₹480 to ₹500 per share, and a minimum bid quantity called the lot size. Investors bid within the band. After the issue closes, the final issue price is decided based on demand. Retail investors can usually choose to bid at the cut-off price, which means they agree to pay whatever final price is set within the band.

Bids are placed in multiples of the lot size. If the lot is 30 shares and the upper end of the band is ₹500, one lot costs ₹15,000. The offer is divided among investor categories — such as qualified institutional buyers, non-institutional investors, and retail individual investors — each with its own reserved portion.

ASBA: your money stays in your account

Applications are made through ASBA, which stands for Application Supported by Blocked Amount. As SEBI's investor website explains, under ASBA the money for the shares you applied for is blocked in your bank account rather than sent to the issuer. It remains in your account, continuing to earn any interest, until allotment. If you receive shares, the required amount is debited; if you do not, the block is simply released and no refund is needed.

UPI as the payment mechanism

SEBI also allows investors to use UPI as the payment mechanism for IPO applications. When you apply through your broker, a mandate request is sent to your UPI app. Approving it blocks the funds under the ASBA framework. If you do not approve the mandate before the deadline, your application is not complete. UPI-based applications are subject to an application value limit set by SEBI, so check the current limit on SEBI's website or in your broker's IPO help pages before applying for a large amount.

Allotment: why oversubscribed IPOs feel like a lottery

When demand in a category exceeds the shares reserved for it, the issue is oversubscribed. For retail individual investors in a heavily oversubscribed issue, allotment is typically done so that as many applicants as possible receive the minimum lot, with a computerised lottery deciding who gets it when there are more applicants than lots. This is why applying for many lots in a hugely oversubscribed IPO often makes no difference to your chances, and why many applicants receive nothing at all.

The basis of allotment is published by the registrar to the issue after the issue closes. You can check your status on the registrar's or exchange's website using your PAN or application number.

From allotment to listing

After allotment, shares are credited to the demat accounts of successful applicants, blocked funds are debited, and unused blocks are released. The shares then list on the exchange and begin trading, on a timeline set by SEBI that has been shortened over the years. The listing day price is set by market demand, and it can be above or below the issue price. There is no guarantee of a listing gain.

Anchor investors and lock-ins

Many IPOs allocate part of the institutional portion to anchor investors a day before the issue opens. Anchor allotments are disclosed publicly. Their shares are subject to lock-in periods, and the dates when large lock-ins expire are worth noting, because additional shares becoming available for sale can affect supply in the market.

Grey market premium: treat it with caution

You will often hear about a grey market premium, an unofficial indication of where some people expect a stock to list. The grey market is unregulated, the numbers are not verifiable, and they can change sharply day to day. It is not an official or reliable signal, and decisions based on it rest on information no regulator checks.

A checklist before applying

• Read the objects of the issue: how much is fresh issue and how much is an offer for sale?
• Read the risk factors section, not just the summary or the advertisements.
• Compare the implied valuation with listed companies in the same business, using figures from the offer document.
• Check that your UPI app is linked to the bank account you intend to use and that the account has enough balance to block.
• Approve the UPI mandate promptly; an unapproved mandate means no application.
• Decide in advance what you would do if the stock lists below the issue price, so the decision is not made in the heat of listing day.

An IPO is a company asking new investors for money at a price it has helped set. That does not make it good or bad, but it does mean the burden of judging the price falls on you. The process is designed to give you the information to do that — the work is in reading it.