Module 1. Introduction to Stock Markets

5. Initial Public Offerings – Part 2

5.1 – Overview

An Initial Public Offering (IPO) is a big step in the life of any company. It’s when a private company offers its shares to the public for the first time and becomes a publicly traded entity.
This process allows the company to raise money from the general public, improve its visibility, and expand operations. It also gives early investors a chance to partially or fully exit their investments. IPOs can be very rewarding for retail investors, but they also come with risks, so understanding the process is crucial.

5.2 – Why Do Companies Go Public?

Here are the key reasons:

1. Raise Capital

The most common reason for an IPO is to raise funds. Companies need money to grow, launch new products, enter new markets, or reduce existing debts. Instead of borrowing money, companies sell a portion of ownership (shares) to the public.

2. Provide Exit Route to Existing Investors

Many times, early investors like venture capitalists, angel investors, or even the founders want to cash out or reduce their stake. An IPO gives them an official way to do this through the stock market.

3. Build Public Image and Credibility
A publicly listed company gains more trust and attention from customers, suppliers, and lenders. It brings transparency and discipline into operations, which boosts brand reputation.
4. Future Fundraising Becomes Easier

Once listed, companies can raise more funds through Follow-on Public Offers (FPOs) or by issuing bonds with better terms, thanks to increased trust and visibility.

5.3 – Merchant Bankers (Lead Managers)

Merchant bankers play a key role in an IPO. They guide the company through every stage of the public issue process.

🧩 Key Responsibilities of Merchant Bankers:

  • Drafting and filing documents like the DRHP (Draft Red Herring Prospectus) with SEBI.

  • Ensuring the company follows all rules and regulations.

  • Conducting financial due diligence.

  • Advising on the issue price or price band.

  • Coordinating the roadshows to attract investor interest.

  • Managing the share allotment and listing process.

Top merchant bankers in India include ICICI Securities, Kotak Mahindra Capital, Axis Capital, and SBI Capital Markets.

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