IPOs

The sequence

1. DRHP. The company files a draft red herring prospectus with SEBI. It becomes public and is the most detailed document you will get.
2. SEBI observations. The regulator comments; the company revises. This can take months.
3. RHP. The updated prospectus is filed with the registrar, with dates and structure.
4. Price band. Announced a few days before opening, along with the lot size.
5. Anchor allocation. Institutional anchors are allotted one working day before the issue opens. The anchor list is published and worth reading.
6. Subscription window. Usually three working days.
7. Allotment and refunds. Basis of allotment is finalised, blocked funds are released.
8. Listing. Shares begin trading, typically within a few working days of the close.

Who gets what

A book-built issue splits the offer between qualified institutional buyers, non-institutional investors and retail individual investors. The proportions depend on whether the company meets profitability criteria, which is why a loss-making issuer reserves a far larger share for institutions.

• QIB. Institutions. Allotment is discretionary within the category.
• NII. Applications above the retail threshold, split into a small and a large sub-category.
• RII. Retail applications up to the prescribed limit per application.

The QIB subscription number on the final day is the one that carries information. Retail subscription reflects sentiment and says little about the business.

Applying

Applications block funds rather than debit them. Retail investors apply through the UPI mandate route or through a bank's ASBA facility. The money stays in your account, earning interest, until allotment.

• Applying at cut-off price means accepting whatever final price is discovered. Bidding below cut-off risks the application being excluded entirely.
• One application per PAN per category. Multiple applications on the same PAN are rejected.
• The UPI mandate must be approved before the cut-off time, which is earlier than the issue close time.

How allotment works

If the retail category is oversubscribed, allotment is by lottery at the level of one lot. Applying for five lots does not give five chances. Applying for one lot from each of several eligible family members, each with their own PAN and bank account, does.

In a heavily oversubscribed issue the realistic outcome for a retail applicant is no allotment. Size any expectation accordingly.

Reading the prospectus

• Fresh issue against offer for sale. A fresh issue brings money into the company. An offer for sale moves existing shares from selling shareholders to you and puts nothing into the business.
• Objects of the issue. What the fresh proceeds will fund. Debt repayment and general corporate purposes are not growth.
• Promoter holding before and after. Large dilution by promoters is information.
• Financials. Look at the restated statements across all three years, not the headline growth figure in the summary.
• Risk factors. Tedious and boilerplate-heavy, but litigation, customer concentration and regulatory dependencies are disclosed here and nowhere else.

Current issues and recent listings