To understand an IPO in stock market in simple words, let’s take the example of a small sweet shop.
Imagine there is a sweet shop in a town, owned by a single person. Over time, this shop becomes very popular and gains a great reputation. Now, the owner wants to expand and open more branches. But to do that, they need more money.
So, the owner decides to raise funds by making the shop public. This means people in the town can now buy a small share of the shop and become partial owners. In return, the owner gets the money needed to expand.
This is exactly what happens in the stock market. When a company wants to raise money, it offers shares to the public for the first time. This process is called an Initial Public Offering or IPO.
What Is an IPO in the Stock Market?
IPO in stock market stands for Initial Public Offering. This is why the process is often referred to as “going public.”
An IPO means that the ownership of a company, which was previously private, is now being opened up to the public. In other words, the company starts offering its shares to ordinary investors, allowing them to become part-owners.
Why Does a Company Use an IPO?
A company usually uses an IPO in stock market to raise funds for growth or to clear existing debts. By going public, the company gets access to capital from everyday investors. In return, the public gets a chance to invest in the company and become part-owners.
Just like the sweet shop owner who chose to raise money by offering a share of their business to the public, companies launch an IPO to gather funds for expansion or improvement. Through this process, investors get a chance to own a part of the company. If the business grows and performs well, the value of their investment can increase, offering potential profits in the long run.
So, IPO in stock market helps the company grow, clear debts if any, and gives the public a chance to invest in a business they believe in.
What are the types of IPO?
In stock market, there are two types of IPO
Fixed Price Offering:
In this type of IPO in stock market, the company fixes the price of the IPO before it is shared with the public. Investors buy shares at this predetermined price. Because the price is fixed, the investor knows exactly how many shares they can buy. To participate in this type of IPO in stock market, the investor must pay the full amount upfront.
Book Building IPO in stock market:
This is a bidding-based system. Here, the company sets a price range for the shares. Investors place bids within this range, indicating how much they are willing to pay and how many shares they want. The final price is determined based on the total bids received and the prices quoted by the investors. Since the investor influences the price, this method allows better price discovery.
What is the Process of Selling IPO Shares?
Selling IPO shares is a crucial part of IPO in stock market and requires a few essential steps to get started. The first and most important requirement is having a Demat (DMAT) account. A Demat account acts as your digital locker where shares allotted through the IPO are held. You can open a free Demat account online through various brokerage platforms, often within minutes.
Once your account is active and shares are credited, you can start planning your IPO in stock market strategy—deciding when and how to sell the shares for the best returns.
Strategy 1: Sell IPO Shares on the Listing Day
One of the most popular strategies in IPO in stock market is selling your shares on the listing day, the day when the IPO is officially listed and begins trading on the stock exchange. Many financial analysts and market researchers suggest that IPO shares tend to perform strongly on the listing day, often offering significant listing gains.
Example:
If you are allotted IPO shares at ₹500 per share, and the stock lists at ₹750, selling immediately locks in a profit of ₹250 per share.
Benefits:
- Quick profit without waiting for long-term market fluctuations.
- Ideal for investors looking for short-term gains.
- Immediate liquidity.
To sell on the listing day, simply log in to your trading platform, go to your holdings, and place a sell order at the current market price once the stock is live. This strategy is widely adopted in IPO in stock market for risk-averse investors.
Strategy 2: Partial Selling on the Listing Day to Cover Expenses
A more balanced IPO in stock market strategy is to partially sell your shares on the listing day. This means selling just enough to recover your initial investment or cover personal expenses, while retaining the remaining shares for future growth.
Example:
If you were allotted 100 shares at ₹500, and the listing price is ₹750:
- Sell 40 shares to recover your cost (₹750 x 40 = ₹30,000),
- Hold 60 shares to potentially benefit from future price appreciation.
Benefits:
- You lock in profits while still having a stake in the company.
- Reduces the emotional pressure of market volatility.
- Allows you to benefit from long-term growth if the company performs well.
This method is especially useful in IPO in stock market for those who want to play safe yet stay invested.
Strategy 3: Selling IPO Shares in Installments
Another effective IPO in stock market method is to sell your IPO shares in phases or installments. Instead of selling everything at once, you can plan a schedule like:
- Sell 50% of your shares immediately after listing (on listing day or shortly thereafter),
- Then sell 10% every quarter based on market conditions and company performance.
Benefits:
- Helps you avoid selling at a single price point, reducing market timing risk.
- Allows you to capitalize on potential price increases over time.
- Encourages disciplined profit booking.
This phased approach suits long-term investors who want to benefit from a stock’s future potential while gradually securing profits.
How to Choose the Best IPO in the Stock Market?
Choosing an IPO might seem tempting at first but if you do not do it wisely and forget the trader psychology then you might face major loss.
1. Do a good research of the IP
Before investing in an IPO, it’s important to go beyond just reading the Red Herring Prospectus (RHP) submitted to SEBI. Yes, the RHP offers a detailed snapshot of the company’s operations, finances, and risks, it may not present the full picture. For a well-rounded understanding, compare the company with its industry peers, study financial ratios, assess market position, and explore how the company plans to use the funds. Also, check the RHP on official platforms like SEBI, BSE, or NSE to ensure you’re accessing verified information. Informed decisions come from layered analysis, not surface-level data.
2. Understand the business model of the IPO in the stock market
When you grasp how the company operates, its revenue streams, competitive advantages, and growth strategies, you gain valuable insights into what drives its success. This includes analyzing how the company earns money, whether through product sales, subscriptions, advertising, or other methods.
By evaluating its competitive temper, be it cost leadership, innovation, customer loyalty, or market positioning you understand what sets it apart in the industry. Then examining its growth strategy, such as expansion plans, diversification, or acquisitions, reveals how it plans to scale over time.
These factors collectively help you assess the long-term viability and potential risks that might affect your investment. In essence, you’re not just investing in a stock; you’re investing in a business. And the more you understand that business, the better your chances of making a sound investment decision.
This is the core reason why investors should always study a company’s fundamentals before putting their money in it gives clarity, confidence, and a more realistic picture of what to expect.
3. Understand the Valuation of the Company
Understanding a company’s valuation for IPO in stock market is crucial because it helps you determine whether the stock is priced fairly, overvalued, or undervalued. Valuation is what ultimately guides your decision to buy, hold, or sell.
Key metrics used to evaluate valuation include:
- Price-to-Earnings (P/E) Ratio: This shows how much investors are willing to pay for each rupee of the company’s earnings. A high P/E might indicate future growth expectations, while a low P/E could signal undervaluation or potential issues.
- Price-to-Book (P/B) Ratio: This compares the company’s market value to its book value. It’s especially useful for assessing asset-heavy companies like banks or manufacturing firms.
- Market Comparisons: Comparing these ratios with industry peers helps provide context. For example, a P/E ratio of 20 might seem high in one sector but be completely normal in another.
By analyzing these figures, you get a clearer picture of the company’s market position and whether the current stock price aligns with its actual worth. This step is essential to avoid overpaying for a stock or missing out on a great opportunity.
4. Don’t Get Fooled by the Hype Around IPOs
Initial Public Offerings (IPOs) can be exciting and emotionally charged, but it’s important to stay grounded. Many retail investors get carried away by the buzz and the illusion of a “low entry price,” thinking it’s a once-in-a-lifetime opportunity. But remember—IPO in stock market are launched for a reason, often to allow early investors or promoters to cash out or raise capital at favorable valuations.
Understanding trader psychology is key. IPOs are marketed to generate hype, and prices can be volatile in the early days. Just because the price seems low doesn’t mean it’s a bargain. It might already be fully priced—or even overvalued—based on future growth expectations.
So before investing in IPO in stock market, do your research. Study the company’s fundamentals, business model, and valuation. Ask: Why is the company going public now? How are the funds being used? What is the competitive landscape?
5. Understand the Company’s Intention Behind the IPO in stock market
An IPO is never done without a purpose. It’s important to ask: “Why is the company going public now” Understanding this intention gives insight into the company’s current situation and future plans.
Companies usually launch IPOs for reasons like:
- Raising capital for expansion – to fund new projects, enter new markets, or invest in technology.
- Clearing existing debt – which might be a red flag if the debt is too high.
- Fulfilling regulatory requirements – especially for companies that need to meet listing norms.
- Improving public image or gaining market trust – going public can boost credibility.
- Allowing early investors or promoters to partially exit – which isn’t always a bad sign, but worth considering.
FAQs Related to IPO in Stock Market Investing
You can start by following reliable blogs and educational platforms. One great blog is StofinIQ, which provides simple and practical explanations about investing.
If you prefer video content, consider subscribing to the Neeraj Joshi YouTube channel, where complex financial topics are broken down into beginner-friendly content.
For a more structured learning experience, you can also download the Neeraj Joshi app and explore his courses on the stock market and mutual funds.
There are two primary ways to earn from an IPO:
- Listing Gains: If the stock lists at a price higher than the issue price, you can sell it on the listing day for a profit. These are short-term gains.
- Long-term Growth: If you believe in the company’s fundamentals, you can hold the stock long-term. As the company grows, its stock value may increase, generating returns over time.
However, both options carry risks—so always research the company’s financials, industry, and IPO purpose before investing.
Intraday trading means buying and selling stocks within the same trading day. Here’s how to get started:
- Open a trading and demat account with a reliable broker.
- Use platforms that offer real-time charts and tools.
- Choose liquid stocks with high trading volumes.
- Set a target and stop-loss before entering any trade.
- Avoid emotional decisions—stick to a strategy and manage your risk wisely.
Intraday trading requires experience, discipline, and constant market tracking. It’s not recommended for complete beginners without proper practice or guidance.
How to Get IPO in Stock market on the First Day?
To get IPO shares on the first day (i.e., during the IPO allotment), you need to apply during the IPO subscription period, not on the listing day. Here’s how:
Step-by-Step Guide:
- Have a Demat Account
You need a Demat and Trading Account with any SEBI-registered broker (like Zerodha, Upstox, Groww, etc.).
2. Check Upcoming IPOs
Stay updated on IPO dates through websites like NSE, BSE, or financial news portals.
3. Apply through UPI or ASBA
- If you use apps like Zerodha, Groww, or AngelOne, you can apply via UPI.
- You can also apply through your net banking using the ASBA (Application Supported by Blocked Amount) method, available with most banks.
4. Apply Early and for the Right Lot Size
Apply on Day 1 or 2 of the IPO window and always in lot sizes (the minimum quantity defined by the IPO). Applying early improves the chances, especially in oversubscribed IPOs.
5. Wait for Allotment
Allotment is done via lottery if the IPO is oversubscribed. You can check your allotment status 1–2 days after the IPO closes on registrar websites like Link Intime or KFintech.
NOTE
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- You cannot buy shares on listing day unless you buy them from the secondary market at market price (which may be much higher).
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- IPO allotment is not guaranteed, even if you apply. It depends on demand and total applications
Buying IPO in stock market for Beginners: What You Should Know
Buying IPO shares can be tricky for beginners. The key is to start by learning, not by expecting instant profits. Many first-time investors jump in hoping for quick gains, but without proper understanding, they end up disappointed.
Instead, focus on building your knowledge. Study how IPOs work, understand the company’s business model, and read the draft red herring prospectus (DRHP). Learn to analyze valuation, growth potential, and the intention behind the IPO in stock market
When you invest with clarity—not just emotion—you increase your chances of making smart decisions. A well-researched IPO can be a great opportunity, but only if you’re patient and informed. keep doing the research, be patient and soon you will see the best of the results for IPO in stock market
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