By Dev Rao | Updated March 2026
What Is an IPO in India?
An Initial Public Offering (IPO) is the process through which a private company offers its equity shares to the public for the first time and lists them on a recognized stock exchange — the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE). The entire process is governed by the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (SEBI ICDR Regulations), which prescribe eligibility criteria, disclosure requirements, pricing mechanisms, and post-listing obligations.
For foreign investors who have funded an Indian company through FDI, CCPS, or venture capital, an IPO represents the primary exit route. Understanding the eligibility requirements, promoter lock-in rules, and FEMA implications is essential for structuring pre-IPO investments that allow a clean exit at listing. India saw over 75 mainboard IPOs in 2024 alone, raising more than INR 1.5 lakh crore, making it one of the world's most active IPO markets.
Legal Basis
- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 — The primary regulation governing public issuances, replacing the earlier ICDR Regulations 2009. Covers eligibility norms (Regulations 5-6), offer document requirements, pricing, allotment, and listing.
- Companies Act, 2013 — Sections 23-42 — Govern the issuance of securities, prospectus requirements, and allotment procedures for public companies.
- SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 — Post-listing compliance obligations including corporate governance, periodic disclosures, and related party transaction rules that the company must follow after IPO.
- FEMA (Non-Debt Instruments) Rules, 2019 — Regulate how foreign-held shares are treated during and after the IPO, including pricing floors and lock-in exemptions.
- SEBI ICDR Amendment (March 8, 2025) — Relaxed eligibility requirements regarding outstanding convertible securities and ESOP-based allotments; tightened SME IPO requirements including minimum EBITDA of INR 1 crore in 2 of the last 3 years.
IPO Eligibility Criteria
SEBI prescribes two routes for mainboard IPO eligibility. A company must satisfy either the Profitability Route or the Alternative Route.
Route 1: Profitability Route (Regulation 5)
- Net tangible assets of at least INR 3 crore in each of the preceding 3 full years (12 months each), with not more than 50% held in monetary assets
- Average operating profit (EBITDA) of at least INR 15 crore over the last 3 years, with positive operating profit in each of those 3 years
- Net worth of at least INR 1 crore in each of the preceding 3 years
- If the company name has changed in the last year, at least 50% of revenue in the preceding year must come from the new activity
Route 2: Alternative Route (Regulation 6)
- The issue is made through the book building process with at least 75% of the net offer allocated to Qualified Institutional Buyers (QIBs)
- No specific profitability or net tangible asset requirement
- Post-issue paid-up capital of at least INR 10 crore
- Market capitalization at the time of listing must exceed INR 25 crore
| Criterion | Profitability Route | Alternative Route (QIB) |
|---|---|---|
| Net Tangible Assets | ≥ INR 3 crore (each of 3 years) | No requirement |
| Operating Profit | ≥ INR 15 crore average (3 years), positive each year | No requirement |
| Net Worth | ≥ INR 1 crore (each of 3 years) | No requirement |
| QIB Allocation | Standard (50% of net offer) | ≥ 75% of net offer to QIBs |
| Post-Issue Paid-Up Capital | ≥ INR 10 crore | ≥ INR 10 crore |
| Market Capitalization | ≥ INR 25 crore | ≥ INR 25 crore |
The IPO Process: DRHP to Listing
The end-to-end IPO process in India typically takes 7 to 12 months from the appointment of the merchant banker to listing day. Here is the step-by-step process:
Step 1: Appointment of Intermediaries
The company appoints a SEBI-registered merchant banker (Book Running Lead Manager or BRLM), legal counsel, registrar to the issue, and auditors. For mainboard IPOs, merchant banker fees typically range from INR 3 to 5 crore (2-6% of issue size).
Step 2: Due Diligence and DRHP Preparation
The merchant banker conducts due diligence and prepares the Draft Red Herring Prospectus (DRHP), which contains the company's business overview, financial statements (restated for the last 3-5 years), risk factors, objects of the issue, and promoter/management details. Since November 2022, companies may use SEBI's pre-filing mechanism to confidentially submit the DRHP before the public filing.
Step 3: SEBI Review
The DRHP is filed with SEBI and the stock exchanges. SEBI issues an observation letter within 30 working days (approximately 6-8 calendar weeks). This letter is valid for 12 months, during which the company must complete the IPO. SEBI may raise queries requiring clarification, which extends the timeline.
Step 4: RHP Filing and Marketing
After receiving SEBI's observation letter, the company updates the DRHP with the latest financials and any changes to create the Red Herring Prospectus (RHP). The RHP is filed with the ROC, stock exchanges, and SEBI. The company then conducts investor roadshows and marketing.
Step 5: Book Building and Pricing
Most mainboard IPOs use the book building process. The company sets a price band (e.g., INR 400-440 per share) and opens the issue for 3 working days. Investors bid within the price band. Anchor investors (institutional investors committing at least INR 10 crore) are allotted shares one day before the issue opens, at a price determined by the issuer and BRLM. Up to 60% of the QIB portion can be allocated to anchor investors.
Step 6: Allotment and Listing (T+3)
After the issue closes, shares are allotted on a proportional basis (for QIBs and NIIs) or lottery basis (for retail investors). Since August 2023, India follows a T+3 listing timeline — shares are listed and commence trading on the stock exchange 3 working days after the issue closes. This is one of the fastest listing timelines globally (down from T+6 prior to August 2023).
Lot Size and Minimum Application
SEBI requires that the minimum application amount for retail investors be between INR 14,000 and INR 15,000. The company sets a lot size (e.g., 34 shares at INR 440 = INR 14,960 per lot). Retail investors can apply for up to INR 2 lakh (the high net-worth individual category starts above INR 2 lakh). Applications are made through the ASBA (Applications Supported by Blocked Amount) process via the investor's bank.
Promoter Lock-In Periods
Lock-in requirements protect public investors from promoter dumping immediately after listing:
| Category | Lock-In Period | Details |
|---|---|---|
| Minimum Promoter Contribution (20%) | 18 months from listing | Promoters must hold at least 20% of post-issue capital; this portion is locked for 18 months |
| Excess Promoter Holding | 6 months from listing | Any promoter holding above the 20% minimum is locked for 6 months |
| Pre-IPO Investors (Non-Promoter) | 6 months from listing | Shares held by VCs, PEs, and other pre-IPO investors are locked for 6 months |
| Anchor Investors (50%) | 30 days from allotment | 50% of anchor investor allotment is locked for 30 days |
| Anchor Investors (remaining 50%) | 90 days from allotment | The remaining 50% is locked for 90 days |
How This Affects Foreign Investors in India
Pre-IPO FDI Structuring
Foreign investors who hold shares in an Indian company through the automatic route or government approval route must ensure their shareholding complies with FDI sectoral caps at the time of IPO. The FEMA pricing guidelines apply to pre-IPO share issuances — shares must be issued to non-residents at or above the fair market value determined under Rule 11UA or the DCF method certified by a SEBI-registered merchant banker.
Lock-In for Foreign Promoters
If a foreign entity is classified as a promoter (which is common for WOS or majority-owned subsidiaries going public), the 18-month lock-in on the minimum 20% contribution applies. Foreign promoters cannot sell or transfer locked shares, including back to the parent company, during this period. The 6-month lock-in applies to excess promoter holding.
FPI vs FDI Classification Post-Listing
Post-listing, the foreign investor's shares are freely tradeable on the exchange (subject to lock-in periods). However, the classification of the holding as FDI (strategic, >10%) or FPI (portfolio, <10%) matters for regulatory purposes. If a foreign promoter reduces holding below 10% post-lock-in, the investment may be reclassified from FDI to FPI, triggering different regulatory reporting requirements.
Costs of Going Public in India
| Cost Component | Mainboard IPO | SME IPO |
|---|---|---|
| Merchant Banker Fees | INR 3-5 crore (2-6% of issue size) | INR 25-30 lakh (5-10% of issue size) |
| Legal Advisory | INR 50 lakh - 1.5 crore | INR 5-15 lakh |
| Registrar to Issue | INR 5-10 lakh | INR 1-2 lakh |
| SEBI Filing Fee | 0.1% of issue size (INR 10-5,000 crore range) | Flat INR 1 lakh (≤ INR 10 crore) |
| Stock Exchange Listing Fee | INR 25,000 - 5 lakh + annual fees | INR 25,000 - 50,000 |
| Marketing & Roadshows | INR 50 lakh - 2 crore | INR 5-10 lakh |
| Printing & Distribution | INR 10-25 lakh | INR 3-6 lakh |
| Total (Approximate) | INR 5-12 crore (3-7% of issue size) | INR 50 lakh - 2 crore (7-10% of issue size) |
Common Mistakes
- Issuing shares to foreign investors at below-FMV prices before the IPO. Pre-IPO issuances to non-residents must comply with FEMA pricing guidelines. If shares were issued at below the SEBI-prescribed floor price, the company will face FEMA compounding proceedings, and the irregularity will be disclosed in the DRHP as a risk factor — potentially delaying SEBI approval.
- Not converting CCPS or convertible notes before filing the DRHP. Outstanding CCPS create uncertainty about post-issue capital structure. SEBI requires clarity on the fully diluted capital at the time of filing. Companies should convert all convertible instruments into equity before DRHP filing, or clearly disclose the conversion terms and impact.
- Underestimating the impact of related party transactions on SEBI scrutiny. Companies with significant related party transactions (common in foreign-invested subsidiaries dealing with their parent) face intense SEBI questioning during the DRHP review. Transfer pricing policies must be well-documented, and arm's length certification should be ready before filing.
- Assuming the 12-month SEBI observation letter validity can be extended. Once SEBI issues the observation letter, the company has exactly 12 months to complete the IPO. If market conditions turn unfavorable and the window expires, the company must re-file the DRHP and restart the process, incurring additional merchant banker fees and legal costs.
- Ignoring post-IPO compliance costs in the fundraising plan. After listing, the company must comply with quarterly financial reporting (within 45 days), corporate governance requirements, and continuous disclosure obligations under SEBI LODR. Annual compliance costs for a newly listed company run INR 50 lakh to INR 1 crore, which must be factored into the IPO proceeds utilization plan.
Practical Example
Meridian SaaS Pte Ltd (Singapore) holds 65% equity in Meridian India Pvt Ltd through FDI under the automatic route. Meridian India has grown to INR 800 crore in revenue with operating profits averaging INR 120 crore over the last 3 years. The Singapore parent decides to take Meridian India public to raise growth capital and provide a partial exit.
Eligibility check (Profitability Route): Net tangible assets exceed INR 3 crore in each of the last 3 years (INR 180 crore average). Average operating profit of INR 120 crore exceeds the INR 15 crore threshold. Net worth of INR 250 crore exceeds INR 1 crore. Meridian India qualifies.
Pre-IPO steps: Meridian India converts from Private Limited to Public Limited Company. All CCPS held by early-stage investors are converted to equity. The company appoints a SEBI-registered merchant banker at a fee of INR 4 crore.
IPO structure: Fresh issue of INR 500 crore (for working capital and expansion) plus Offer for Sale (OFS) of INR 300 crore (partial exit by Meridian SaaS Pte Ltd). Total issue size: INR 800 crore. Price band: INR 600-640 per share. Lot size: 23 shares (minimum application INR 14,720).
Lock-in: Post-IPO, Meridian SaaS Pte Ltd retains 45% equity. The minimum promoter contribution of 20% is locked for 18 months. The excess 25% holding is locked for 6 months. Pre-IPO angel investors (5% holding) face a 6-month lock-in.
Timeline: DRHP filed in January 2026. SEBI observation letter received in March 2026 (within 30 working days). RHP filed in May 2026. Issue opens for 3 days in June 2026. Listing on NSE and BSE on T+3 (June 2026). Total process: approximately 6 months.
Costs: Merchant banker (INR 4 crore) + legal (INR 1 crore) + registrar (INR 8 lakh) + SEBI fee (INR 80 lakh at 0.1%) + marketing (INR 1.2 crore) + miscellaneous (INR 50 lakh) = approximately INR 8.4 crore (about 1.05% of issue size).
Key Takeaways
- India's IPO market is governed by SEBI ICDR Regulations 2018, offering two eligibility routes: the profitability route (INR 15 crore average operating profit, INR 3 crore net tangible assets) or the alternative QIB route (75% allocation to qualified institutional buyers)
- The DRHP-to-listing process takes 7-12 months, with SEBI issuing observation letters within 30 working days and a T+3 listing timeline after issue closure
- Promoter lock-in is 18 months for the minimum 20% contribution and 6 months for excess holding; anchor investors face 30/90-day staggered lock-ins
- Pre-IPO foreign investors must ensure FEMA pricing compliance on all prior share issuances, as any below-FMV issuance will be flagged in the DRHP
- Total IPO costs for mainboard listings range from INR 5-12 crore (3-7% of issue size), with merchant banker fees being the largest component
- Post-listing compliance under SEBI LODR adds INR 50 lakh to INR 1 crore in annual costs for quarterly reporting, corporate governance, and continuous disclosure
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