Stock Market 101–Lesson 14 IPOs for Beginners: Process, Allotment & Listing Day Basics
Hook: “IPO profit guaranteed” is the biggest trap
IPOs for beginners: Almost every beginner hears this at least once:
“Just apply for IPOs… listing day will give instant profit.”
Sometimes it happens. Many times, it doesn’t.
An IPO can list at a premium, at par, or even below issue price. And even when it lists higher, the price can fall fast after the opening rush. So, if you want to learn IPOs properly, you need process + expectations + checklist — not hype.
In this lesson, I’ll explain IPOs in a very simple way:
How IPOs work (step-by-step)
How allotment actually happens (and why you may not get shares)
What happens on listing day
DRHP basics (what to read and what to ignore)
A clean due-diligence checklist you can follow every time
What is an IPO in simple words?
An IPO (Initial Public Offering) is when a private company offers its shares to the public for the first time and gets listed on the stock exchange.
Why companies launch IPOs:
To raise money for growth (new plants, expansion, technology)
To reduce debt
To give early investors a partial exit (PE/VC, promoters)
To improve brand trust and public visibility
Why investors apply:
To own a piece of the business early
For long-term compounding (if business quality is strong)
Sometimes for listing gains (high risk, not guaranteed)
IPO journey: the timeline (from announcement to listing)
Here’s the typical IPO flow you’ll see in India:
1) Company files DRHP
DRHP is like a “big report” about the company. (We’ll discuss what to check inside it.)
2) Price band + dates announced
You’ll see:
Price Band (example: ₹210–₹225)
Issue dates (open date and close date)
Lot size (minimum shares you must apply for)
IPO size (how much money they’re raising)
3) Subscription period (3 days usually)
Investors apply through broker apps using UPI for retail.
4) Basis of allotment finalized
This is where many beginners get confused. Allotment is not “first come first serve.”
5) Shares credited + listing day
If you get allotment, shares come to your demat before listing (or on listing day as per process).
Who can invest? (categories in IPO)
Most IPOs are divided into categories:
QIB (big institutions like mutual funds, banks)
NII/HNI (high net worth investors)
Retail (most of us)
Retail has a limit (commonly up to ₹2 lakh application value).
IPO pricing: fixed price vs book building (easy explanation)
Fixed price IPO
Company sets one price. You apply at that price.
Book building IPO (most common)
Company gives a price band.
You can apply at any price within band
Most retail investors simply choose cut-off price
Cut-off means: “I agree to pay final price decided within band”
IPO allotment: the truth every beginner must know
Why you may not get allotment even if you applied correctly
Because of oversubscription.
If an IPO is heavily subscribed, allotment in retail is usually done by lottery system (random selection) — one lot to as many people as possible.
Simple example (lottery logic)
Retail portion has 1,00,000 lots available
10,00,000 people applied for 1 lot each
Then only 1,00,000 people get allotment
9,00,000 people get nothing (money is unblocked/returned)
Important point
Applying for more lots in retail does not always increase chance as you expect (rules differ across categories and conditions). For retail, focus on applying correctly and keeping realistic expectations.
DRHP basics: what it is and why it matters
DRHP = Draft Red Herring Prospectus
It’s the official document with details like:
Company business model
Risks
Financial statements
How money will be used
Promoter details
Legal cases (if any)
Competitive landscape
You don’t need to read 300 pages like a lawyer. You just need to read the right parts.
DRHP: what to check (beginner-friendly)
1) “Objects of the issue” (how they will use money)
Look for:
Expansion / new capacity / technology upgrade = positive
Heavy debt repayment = depends (can be good, but check why debt is high)
Mostly “general corporate purpose” = not always bad, but less clarity
2) Revenue and profit trend (3 years)
Check:
Is revenue growing steadily?
Profit growing or fluctuating.
Cash flow positive or only “paper profits”?
A company can show profit but still struggle with cash.
3) Business model clarity
Ask:
How does company make money?
Who are the customers?
Is it dependent on 1–2 clients? (risk)
Is demand stable or seasonal?
4) Risks section (don’t skip!)
Most people ignore this and read only headlines.
Look for common red flags:
“We have incurred losses in the past” (not always bad, but understand)
“Our business depends on a limited number of customers”
“Pending litigation”
“High working capital requirement”
5) Promoter selling vs fresh issue (hype vs reality)
IPO has two parts:
Fresh issue = company raises money
OFS (Offer for Sale) = existing shareholders sell their stake
If IPO is mostly OFS, money goes mainly to sellers, not company growth. That doesn’t make it “bad” automatically — but you should know what you’re buying.
Subscription numbers: how to read them (without confusion)
You’ll hear:
“IPO subscribed 30x”
“Retail subscribed 5x”
“QIB subscribed 80x”
What it really indicates:
High subscription = strong demand
But high demand can also be pure hype
Some IPOs subscribe big and still list weak (market mood matters)
So treat subscription as one signal, not final decision.
GMP (Grey Market Premium): should beginners rely on it?
GMP is unofficial market talk about expected listing.
Reality:
GMP can change daily
It is not regulated
It can be wrong, especially when market sentiment turns
Use GMP only as “market mood indicator,” not as investment advice.
Listing day basics: what happens when IPO lists?
On listing day, you will see:
Listing price (first traded price)
High volatility in first 30–60 minutes
Sharp moves due to:
profit booking
operator activity
general market direction
institutional strategy
Common beginner mistake
Buying on listing day just because price is rising fast.
If you didn’t get allotment, don’t panic-buy at any price. Many IPOs cool down after initial excitement.
Practical strategy: 3 simple ways to approach IPOs
1) Long-term investor approach
Apply only if:
Business quality is strong
Valuation is reasonable vs peers
You can hold for 3–5 years
2) Balanced approach (most beginners)
Apply when:
Company + fundamentals are decent
Valuation not crazy
Market sentiment stable
And decide on listing day based on plan (not emotion).
3) Listing gain approach (highest risk)
This is where many people lose money.
If you follow this approach, you must:
keep strict rules
avoid greed
accept that loss is possible
IPO Due-Diligence Checklist (save this)
Before you apply, quickly tick these:
Company & Business
✅ Do I understand the business in 2 lines?
✅ Revenue trend improving over 3 years?
✅ Profits and cash flow not suspicious?
Money Use
✅ Funds used for growth or strong purpose?
✅ Not only vague “general purpose”?
Risks
✅ No major customer concentration risk (or at least manageable)?
✅ No serious legal issues that can hit operations?
Valuation
✅ Compared with peers (P/E or valuation range)?
✅ Not priced like a “perfect company” already?
Market Mood
✅ Overall market stable or very volatile?
✅ Sector sentiment positive/neutral?
If most answers are “No”, skipping is a smart decision.
IPOs for beginners – Realistic expectations (this will save your money)
Not every IPO gives listing gains
Not getting allotment is normal in hot IPOs
A good company can list flat and still be great long-term
A hyped IPO can list high and still crash later
The goal is not “win every IPO.”
The goal is to build good decision habits.
Quick recap (Lesson 14)
IPO = company’s first public share sale
Allotment is often lottery-based during heavy subscription
DRHP tells you where the truth is (business, risks, money use)
Listing day is volatile — plan matters more than excitement
Use a checklist, not emotions
👉Further reading
Before investing in IPOs, understand portfolio basics
Stock Market 101 – Lesson 13 ETFs & Index Funds: Fees, Tracking, and How to Choose
Stock Market 101 – Lesson 12 Building a Starter Portfolio: 3 Simple Recipes for Beginners
Stock Market 101 – Lesson 11 MA, RSI & MACD
Stock Market 101 – Chart Patterns Explained
Stock Market 101 – Lesson 3
Stock Market 101: Learn Stocks from Zero
Initial Public Offering (IPO)
Disclaimer:
This lesson is for educational purposes only and not financial advice. IPO investments carry market risk. Please do your own research or consult a SEBI-registered advisor before investing.