Public Issues (IPO)
Public Issues (IPO) is the primary market where companies raise equity capital from the public. The exam tests issue structure, investor categories, application mechanics and listing.
Core rules
- SEBI's ICDR Regulations govern public issues.
- A book-built main-board issue allocates 50% to QIBs, 15% to non-institutional investors and 35% to retail investors, subject to the issue structure.
- Retail individual investors can apply up to ₹2 lakh in a main-board IPO.
- Applications use ASBA or UPI; funds are blocked, not paid to the company immediately.
- Anchor investors may be allotted up to 30% of the QIB portion, with lock-in.
- Allotment is proportionate or by lottery depending on category and oversubscription; listing follows.
Worked example
A book-built issue has 1 crore shares. Retail portion = 35% = 35 lakh shares. Retail bids total 1.4 crore shares, so the retail category is oversubscribed 4 times. Allotment ratio = 35 lakh ÷ 1.4 crore = 25%; a retail applicant for 100 shares is considered for 25 shares, subject to minimum lot and lottery rules. The reasoning: category-wise oversubscription determines allotment, not overall issue subscription.
Traps that cost marks
- Assuming an IPO application guarantees allotment.
- Mixing the ₹2 lakh retail limit with the NII category.
- Thinking ASBA debits money immediately.
- Ignoring anchor-investor lock-in when reading supply.