What is IPO? A Simple Guide with Indian Examples & Book-Built Issue Explained

If you follow the Indian stock market, you must have heard news like “XYZ company’s IPO opens tomorrow”. But what exactly is an IPO? How does it work? And what is a book-built issue?

Let’s understand everything in simple language with Indian examples.

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📌 What is an IPO?

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🎯 Why Do Companies Launch an IPO?

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🇮🇳 Example of IPO in Indian Context
🔹 Life Insurance Corporation of India (LIC IPO – 2022)

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🧾 Types of IPO Issues in India

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1️⃣ Fixed Price Issue
If a company fixes ₹100 per share, every investor must apply at ₹100.

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2️⃣ Book-Built Issue (Most Common Method in India)
📖 What is a Book-Built Issue?
Price band: ₹100 to ₹120

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🔎 How Book-Building Works (Step-by-Step)

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📌 What is Cut-Off Price?

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🏦 Who Regulates IPO in India?

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📊 Real Example of Book-Built IPO
Hyundai Motor India (hypothetical IPO example)

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🤔 Why Book-Built Issue is Better?
✔ Fair pricing
✔ Reduces underpricing or overpricing
✔ Transparent system

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⚖ Difference Between Fixed Price & Book-Built Issue

Basis	Fixed Price	Book-Built
Price	Pre-decided	Price band given
Demand	Known after closing	Known daily during issue
Popularity	Less common	Most common in India
Risk	Higher pricing risk	Better price discovery

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🧠 Important Terms to Know in IPO

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🎯 Final Conclusion
✔ Check financials
✔ Understand risks
✔ Avoid investing only for listing gain

IPO (Initial Public Offering) is the process through which a private company becomes a public company by offering its shares to the public for the first time.

In simple words:

👉 When a company sells its shares to common investors for the first time, it is called an IPO.

After the IPO, the company gets listed on stock exchanges like:

• BSE

• NSE

Once listed, investors can buy and sell shares freely in the stock market.

Companies launch IPOs to:

• Raise money for business expansion

• Repay loans

• Invest in new projects

• Increase brand visibility

• Provide exit to early investors

One of the biggest IPOs in India was:

• LIC launched its IPO in May 2022.

• It was one of the largest IPOs in Indian history.

• The government sold a part of its stake to the public.

• After listing, LIC shares started trading on NSE and BSE.

Another popular example:

• Zomato IPO (2021)

• Paytm IPO (2021)

These companies were private earlier but became public after their IPO.

There are mainly two types:

1. Fixed Price Issue

2. Book-Built Issue

Let’s understand both.

In this type:

• The company fixes a single price for its shares.

• Investors apply at that fixed price.

• Demand is known only after the issue closes.

Example:

This is the most popular IPO method in India.

In a book-built issue, the company does not fix one single price. Instead, it gives a price band.

For example:

Investors can bid within this range.

• Some may bid at ₹110

• Some at ₹120

• Some at ₹115

After collecting all bids, the company decides a final price, called the Cut-off Price.

1. Company decides price band (say ₹100–₹120).

2. Investors place bids within this range.

3. Bids are collected for 3 days.

4. Based on demand, the final price is decided.

5. Shares are allotted.

6. Company gets listed on NSE/BSE.

The cut-off price is the final price at which shares are allotted.

Retail investors usually select the “Cut-off” option while applying, which means:

👉 “I am ready to buy shares at whatever final price is decided.”

All IPOs in India are regulated by:

• Securities and Exchange Board of India (SEBI)

SEBI ensures transparency, investor protection, and proper disclosures.

Let’s take the example of:

Suppose:

• Price band: ₹1500 – ₹1600

• Investors bid at different prices

• Most demand comes at ₹1600

Final cut-off price may be ₹1600.

Shares are then allotted at ₹1600.

✔ Helps discover real market demand

That’s why most large IPOs in India follow the book-building method.

• DRHP – Draft Red Herring Prospectus

• Lot Size – Minimum shares you must apply for

• Oversubscription – When demand is more than shares available

• Listing Gain – Profit on listing day

An IPO is a major step for any company. It helps businesses raise funds and allows investors to become shareholders.

In India, most IPOs follow the book-built issue method, which ensures better price discovery and transparency.

Before investing in any IPO, always:

✔ Read the prospectus

📌Disclaimer:
This article is for educational and informational purposes only and does not constitute investment advice. IPO investments are subject to market risks. Please read official documents filed with the Securities and Exchange Board of India (SEBI) and consult a financial advisor before making any investment decision. The author is not responsible for any financial losses.