If you’ve ever wondered how a company goes from being privately owned to trading on the stock exchange, the answer lies in the IPO cycle. An IPO (Initial Public Offering) isn’t just a single event—it’s a complete process where companies prepare, offer shares to the public, and finally get listed on the market.
For investors, understanding the IPO cycle is important because it helps them know when to apply, how allotment works, and what to expect after listing.
In this guide, we’ll break down the IPO cycle step by step so you can see the journey from both the company’s side and the investor’s point of view.
Understanding the IPO Cycle for Investors
An IPO (Initial Public Offering) is the process through which a private company offers its shares to the public for the first time. By doing this, the company gets listed on the stock exchange and raises money for its growth, while investors get the opportunity to become part-owners of the business.
For example, when a well-known startup like Zomato or Nykaa went public, investors had the chance to buy its shares during the IPO and benefit from future growth or listing gains.
For investors, an IPO isn’t just about applying for shares—it’s about understanding the IPO cycle, which helps you decide the right time to enter, what risks to consider, and how to plan your investment.
Also Check: How Much Tax Can Be Saved by Home Loan
Stages of IPO Cycle (Investor Side)
For an investor, participating in an IPO isn’t just about applying and waiting. The IPO cycle is a journey with multiple stages, each requiring attention and smart decisions. Let’s break down the process step by step so you know exactly what to expect.
1. Pre-Announcement Phase
The IPO journey for investors usually begins when a company announces its plan to go public. This news spreads through financial portals, stock market updates, or the company’s Draft Red Herring Prospectus (DRHP).
At this stage, the goal is to research, not rush. The DRHP provides valuable details—company financials, revenue model, risk factors, and future growth strategies. For example, if a food delivery company is launching an IPO, you’d want to check its profitability, customer base, and competition before making a decision.
✅ Investor Action: Read the DRHP, follow news updates, compare the company with its peers, and decide whether the IPO fits your financial goals. Entering an IPO blindly because of hype often leads to regret later.
2. IPO Application & Subscription
Once the IPO opens for subscription (usually for 3 working days in India), investors can apply for shares through stockbrokers, UPI apps, or banking platforms.
Applications are divided into categories—Qualified Institutional Buyers (QIBs), Non-Institutional Investors (NIIs), and Retail Investors. Monitoring the subscription status of each category gives you an idea of investor sentiment. Heavy oversubscription by QIBs often signals strong institutional confidence.
✅ Investor Action: Apply early, double-check UPI mandates or payment instructions, and keep an eye on subscription data. This helps you set realistic expectations about allotment chances.
3. Allotment Phase
After the subscription window closes, the company allots shares based on demand. In oversubscribed IPOs, allotment for retail investors happens via a lottery system—which means even if you applied correctly, you might not get shares. If you don’t receive an allotment, the blocked amount in your account is released or refunded.
✅ Investor Action: Check your allotment status online on the registrar’s website or via broker apps. If you don’t get shares, don’t be disappointed—funds are refunded, and you can look for upcoming IPOs.
4. Listing Day Experience
This is often the most exciting stage for investors. If you’re allotted shares, they are credited to your Demat account before listing day. On the listing date, the stock starts trading on exchanges like NSE or BSE in India.
The listing price may be at a premium (above the issue price) or a discount (below the issue price). Many retail investors choose to sell immediately for listing gains, while others prefer to hold long-term if they believe in the company’s fundamentals.
✅ Investor Action: Plan your strategy in advance—don’t decide in the heat of the moment. If the IPO lists at a huge premium, ask yourself if quick profits suit your goals. If the business has strong growth potential, holding may be wiser.
5. Post-IPO Investment Phase
The IPO cycle doesn’t end with listing—it only changes form. Once the company is listed, it becomes like any other stock. Investors need to track its quarterly earnings, news updates, and stock performance.
Some IPOs perform exceptionally well in the long run (like Infosys), while others lose steam after the initial hype. Your role as an investor is to monitor regularly and adjust your portfolio accordingly.
✅ Investor Action: Keep track of performance, set target prices, and decide whether to hold, buy more, or exit. Remember—IPO investing should align with your broader financial goals, not just short-term excitement.
👉 In short: The IPO cycle for investors moves through five stages—research, application, allotment, listing, and post-listing management. Each step requires clarity and planning. The more informed you are, the better your chances of turning IPOs into profitable opportunities.
Benefits of IPO Cycle for Investors
Investing in IPOs offers several advantages, especially for retail investors who want to grow their wealth. Here are some of the key benefits:
1. Early Entry into Promising Companies
An IPO gives investors a chance to buy into a company at the very beginning of its stock market journey. This is often before the stock gains widespread attention from larger institutional investors. If the company grows successfully after listing, early investors can benefit from significant appreciation.
2. Potential Listing Gains
One of the biggest attractions of IPOs is listing gains. If demand is strong, the stock may debut at a premium compared to the issue price. Investors who sell on listing day can make quick profits. For instance, recent IPOs in India like Nykaa and Zomato saw strong listing premiums, rewarding early applicants.
3. Diversification Opportunities
IPOs also allow investors to diversify their portfolios with companies from new sectors. For example, if your portfolio is heavy on banking and IT, participating in an IPO from the FMCG or fintech sector can balance your investments. Diversification spreads risk and creates more growth opportunities.
Risks Investors Should Consider
While IPOs sound exciting, they also come with risks that every investor should carefully evaluate.
1. Oversubscription and No Allotment
Popular IPOs often receive huge demand, sometimes hundreds of times more than the shares available. In such cases, retail investors face the risk of not getting any allotment at all. This can be frustrating, especially after waiting through the cycle.
2. Listing at a Discount
Not all IPOs guarantee profits. If market sentiment turns negative or if the company is overvalued, the stock can list at a discount. This means the share price on debut day is lower than what investors paid, leading to immediate losses.
3. Market Volatility and Lock-In Periods
Stock markets are unpredictable, and IPO shares can be highly volatile in the early days. In addition, certain investor categories (like promoters or institutional investors) may have lock-in periods, restricting when they can sell. Retail investors need to be aware of these dynamics to avoid panic-selling.
Conclusion
The IPO cycle for investors is more than just applying for shares—it’s a complete process that involves research, decision-making, allotment, and post-listing management. A successful IPO investment requires balancing the excitement of potential listing gains with the discipline of long-term evaluation.
A smart investor doesn’t chase every IPO blindly. Instead, they study the company’s fundamentals, assess risks, and make choices aligned with their financial goals. By understanding the IPO cycle step by step, you can avoid common mistakes, stay prepared for different outcomes, and position yourself to benefit from the opportunities IPOs bring.
FAQs
What is meant by IPO cycle?
The IPO cycle is the complete process a company and investors go through when a business goes public. For companies, it involves preparation, regulatory approvals, and listing. For investors, it covers research, applying, allotment, and post-listing decisions.
What are the three parts of the IPO cycle?
The three main parts of the IPO cycle are the pre-IPO stage (planning and approvals), the IPO offering stage (subscription window where investors apply), and the post-IPO stage (listing on the exchange and monitoring performance).
What happens to employees when a company goes IPO?
Employees often benefit from an IPO if they hold stock options or ESOPs, as their shares become tradable. However, they may face lock-in periods before selling and will see their ownership value fluctuate with the stock price.
What are the 7 steps to getting an IPO?
The 7 steps include deciding to go public, hiring underwriters, filing with regulators, getting approval, announcing the price band, opening subscriptions, and finally allotting shares before listing on the stock exchange.
What is an IPO diagram?
An IPO diagram is a simple visual chart showing the stages of the IPO process—from company preparation and subscription to allotment and stock exchange listing—making it easier to understand the cycle.