Reviewed by Kanishk Dev Bangia, NISM Series XV Certified Research Analyst
Last Updated: June 2026 | Reg. No: NISM-202300182946
From time to time, big news hits the financial scene getting everyone pumped up — a major company got the green light for an initial public offering. The social media chatter is wild, and share prices shift even before the actual stocks hit the market. People can't help but wonder if they should jump in.
However, it's wise to slow down and understand the deal with this approval — what it really means and doesn't mean.
This blog's all about walking newbies through each stage of the IPO process. It spells out crucial terms and lays out the important questions would-be investors need to ask themselves before deciding if a pre-IPO chance is worth their while.
There won't be any names mentioned, nor will there be calls on buying or selling stocks. Just the basic facts made easy to grasp.
1. What Is SEBI, and Why Does Its Approval Matter?
SEBI, the Securities and Exchange Board of India, regulates the country's stock markets, just like the SEC does in the US. Their main goal? Protecting investors and making sure companies are honest about their finances before raising funds from the public.
Companies looking to launch an IPO and list their shares need to submit a DRHP, or Draft Red Herring Prospectus, to SEBI. This document provides all the essential details they're required to share.
This document covers:
● The company's business model and history
● Its financial performance over recent years
● How it plans to use the money raised from the IPO
● Key risks investors should be aware of
● Details about promoters, shareholders, and ownership structure
SEBI reviews this document and, if satisfied, grants approval for the company to proceed with its IPO process. This approval is a significant regulatory milestone — it means the company has passed a basic level of scrutiny.
2. Confidential DRHP: A Term Beginners Often Miss
Recently, SEBI let companies choose to submit their DRHPs confidentially. So, instead of sharing it with everyone right away, the regulator reviews it privately. This way, the public don't see it until after the review process.
A confidential filing is often used by companies that:
● Are still finalising key financial or structural details
● Want to test regulatory waters before committing publicly
● Need flexibility to adjust their plans based on market conditions
Investors have a key blind spot because crucial info — like exact share counts, promoter dilution, and final valuations — isn't available yet. The DRHP, which has all the full disclosures, comes out later, usually just a few weeks before the IPO starts.
3. The IPO Process: Step by Step
New investors often think that getting SEBI approval means a company's IPO is just around the corner. Actually, lots of steps are left. This usually includes more planning and final preparations, so there's still work to do.
1. Company prepares and files the DRHP (confidential or public)
2. SEBI reviews the document and may ask for clarifications or corrections
3. SEBI grants approval (the milestone that makes headlines)
4. Company decides the IPO timing based on market conditions
5. Public DRHP is released — full details become available
6. Roadshows and institutional investor meetings take place
7. Price band is announced and IPO subscription opens
8. Shares are allotted and the company lists on stock exchanges
The time between Step 3 and Step 8 can range from a few months to over a year, depending on the company's readiness and overall market conditions.
4. Share Dilution: The Number That Changes Everything
A big deal—but often ignored—part of pre-IPO investing is share dilution. Here’s an easy way to think about it: Think of a pizza sliced into 10 pieces. If you grab 2 slices, that means you have 20% of the pie. But if someone cuts that same pizza into 20 slices, your two slices still look the same, but they’re now just 10% of the whole pizza.
In a company, the same thing can happen with shares. Many startups issue special financial instruments like:
● CCPS — Compulsorily Convertible Preference Shares
● Warrants
● ESOPs — Employee Stock Option Plans
● Convertible notes
These instruments convert into regular equity shares when the company goes public. This increases the total share count — and can significantly reduce each existing share's proportional value.
If the total outstanding shares after conversion are higher than what the market was assuming, then valuations calculated on the older, lower share count are inaccurate.
5. The Unlisted Market: How It Works and What to Watch Out For
The unlisted market—also known as the grey market or pre-IPO market—is where companies sell shares before they hit official stock exchanges. It runs outside the formal system, so it doesn’t get regulated like regular markets. Here, deals go down privately between buyers and sellers.
What drives prices in the unlisted market?
● News about the company's progress (like SEBI approval)
● Speculation about the upcoming IPO valuation
● Demand from early investors looking to exit
● General investor sentiment toward the sector
What risks do beginners face here?
● Prices can be based on rumour and incomplete information
● There is limited liquidity — it may be hard to sell quickly
● Settlement and transfer processes differ from stock exchanges
● Lock-in restrictions after an IPO may prevent immediate exit
When a company gets SEBI approval, unlisted market prices often spike because of excitement. The actual IPO price, determined months later by institutional demand, can be way different from that initial unlisted price. This discrepancy is where many retail investors get caught off guard. So, the big difference is between what the unlisted market expects and the final IPO price.
6. What Is a Lock-In Period and Why Should You Care?
When investors buy shares before a company goes public, they sometimes can't immediately sell them once the company is listed. SEBI says that some pre-IPO buyers must wait out lock-in periods. These periods, which might be 6 months or longer, start from the listing date and limit when these investors can sell their shares on the market.
For beginners, this creates a hidden time risk:
● You might buy unlisted shares today
● The IPO might happen 6–9 months later
● You might be locked in for another 6 months post-listing
● Your actual exit could be 12–18 months away from today
During this entire period, your capital is tied up. It cannot be used for other opportunities. And if the market moves unfavourably during this window, your ability to react is limited.
7. How Is an IPO Valuation Actually Decided?
Retail investors often think a company's listing price depends on how much hype it gets on social media. Really, it's decided through a pretty set process.
First off, institutional investors and big players like large mutual funds and insurance companies have priority access before the general public can get in. The prices these big boys are willing to pay for their shares really shape the IPO price range.
Secondly, investment bankers and analysts do their thing by comparing the company to others in the same field. They check out their revenue, profits, growth rates, and overall performance to figure out where the new company fits in.
So, it's not just about popularity; it's largely driven by what the pros determine is fair based on numbers and comparisons with existing firms.
Market conditions at the time of launch
A company can get SEBI approval during boom times but hold off on its IPO if the market sours. The timing chosen and the market's mood then really shape the valuation and how much demand there is.
This means the current buzz in the unlisted market might not show up in the IPO price. These prices are influenced by entirely different factors.
8. Four Key Developments to Track After a SEBI Approval
If you are interested in following a company's IPO journey intelligently, here are the four most important milestones to watch:
1. Release of the Public DRHP
This is when companies release full financial disclosures, actual share counts after conversions, promoter details, and fund usage plans. Without it, any talk of valuation is just guesswork.
2. IPO Launch Timing
Keep track of whether the company announces an IPO open date. Remember that approval does not equal launch. Many companies wait for the right market conditions.
3. Institutional Investor Demand
Word on anchor investors and institutional subscriptions during an IPO means more for valuations than unlisted prices do. Big funds usually dig deeper, so their commitment indicates a higher level of confidence and thorough analysis compared to general retail sentiment.
4. The Final Price Band
This is the real deal with the company's worth. Compare it to what the hidden market thought before — any gap between shows if that pre-IPO hype was for real or not.
9. A Checklist for Beginner Investors Watching Any IPO
Whether you are tracking a hospitality company, a fintech startup, or an ed-tech business heading toward an IPO, the following questions are worth asking before forming any opinion:
● Has the full public DRHP been released? If not, is the share count fully known?
● What is the company's revenue and profit trend over the past 3 years?
● Has the company been profitable, or is it burning cash?
● What is the total market size for its industry, and what share does it hold?
● Who are the major shareholders, and how much are they diluting?
● What is the IPO size, and how much goes to the company vs. existing investors selling out?
● How does the valuation compare to listed peers in the same sector?
● What is the likely lock-in period for pre-IPO investors?
● What are the primary risks listed in the DRHP?
● What is the realistic timeline from today to actual liquidity?
These questions will not give you a final answer — but they will give you a framework to think more clearly about what you are evaluating.
Disclaimer:
This is written for educational and informational purposes only. Nothing here constitutes investment advice or a recommendation to buy or sell securities. All data is sourced from publicly available information. Investments in securities markets are subject to market risks — please read all offer documents carefully before investing.
