An Initial Public Offering (IPO) is a process through which a privately held company offers its shares to public investors for the first time, generally seeking to list them on a stock exchange.
Companies undertake IPOs to raise capital for expansion, repay debt, fund business operations, or provide existing shareholders with an opportunity to sell their holdings.
An IPO may involve newly issued shares, existing shares sold by current shareholders, or a combination of both.
Key features of an IPO include:
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Public Share Ownership: Investors can purchase shares in a company that was previously privately held.
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Fresh Issue: The company issues new shares and receives the money raised for business purposes.
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Offer for Sale (OFS): Existing shareholders sell their shares, and the proceeds go to those shareholders rather than the company.
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Price Discovery: Shares may be offered through a book-building process, where investor demand helps determine the final issue price.
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Stock Exchange Listing: After a successful IPO and completion of listing requirements, shares become available for trading on a stock exchange.
For example, a company issuing 1 crore new shares at ₹200 each raises ₹200 crore before issue-related expenses.
IPOs help companies access public capital markets, increase visibility, and create liquidity opportunities for shareholders.
However, IPO investments carry risks such as uncertain valuations, market volatility, business performance concerns, and potential losses after listing. Investors are not guaranteed share allotment or listing gains.