What is an IPO and How to Apply (with GMP Explained) — India 2026

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In short: An IPO (Initial Public Offering) is when a private company sells shares to the public for the first time, getting listed on NSE/BSE. In India, you apply through ASBA (Applications Supported by Blocked Amount) — money sits blocked in your bank account until allotment. If you get allotted, the bank debits and shares land in your demat account. GMP (Grey Market Premium) is an unofficial indicator of demand — the rate at which IPO shares trade in the unregulated grey market before listing. A high GMP suggests strong listing-day gains, but GMP is unregulated, manipulable, and not a guarantee. This guide explains the full IPO process, how to apply via UPI in 5 minutes, what GMP actually means, and seven common mistakes.

What is an IPO?

An Initial Public Offering is the first sale of shares by a private company to the public. The company files a prospectus (Draft Red Herring Prospectus or DRHP) with SEBI explaining its business, financials, risks, and use of IPO proceeds. SEBI reviews, asks clarifications, and once satisfied, the IPO can launch.

The company appoints lead managers (investment banks like Kotak, JM Financial, Axis Capital) who decide pricing, manage the book-building process, and market the IPO. Retail investors get a fixed allocation (typically 35 percent of the issue for mainboard IPOs), Qualified Institutional Buyers (QIBs) get 50 percent, and Non-Institutional Investors (NIIs/HNIs) get 15 percent.

Two reasons companies go public:

1. Fresh issue: Company issues new shares to raise capital for expansion, debt repayment, or working capital. This money flows to the company.
2. Offer for Sale (OFS): Existing shareholders (promoters, early investors, PE firms) sell their stake. This money goes to them, not the company.

Most IPOs combine both — a fresh issue component plus an OFS component. The DRHP discloses the exact split.

Types of IPOs in India

• Mainboard IPO: Listed on NSE/BSE main platforms. Companies with paid-up capital ≥ ₹10 crore. Most well-known IPOs (Zomato, Paytm, LIC, Hyundai) fall here.
• SME IPO: Listed on NSE Emerge or BSE SME platform. For smaller companies (paid-up capital ≥ ₹1 crore). Higher risk, lower liquidity, lot sizes ₹1 lakh+ minimum.
• FPO (Follow-on Public Offering): Already-listed company issues additional shares. Same application process as IPO but the company already has a listed history.
• Rights Issue: Listed company offers existing shareholders the right to buy additional shares at discounted price, proportional to their holding.

The IPO process — from announcement to listing

SEBI shortened the full T+6 cycle (from closing to listing) from T+12 in 2018 to T+6 in 2024 — making it one of the fastest listing cycles globally.

How to apply for an IPO — step by step

Step 1: Confirm eligibility

You need:

• A demat account (any SEBI-registered broker)
• A bank account linked to UPI (preferred) or ASBA-enabled net banking
• PAN linked with Aadhaar
• Sufficient funds in your bank account for the bid amount

Step 2: Find ongoing IPOs in your broker app

All major discount brokers (Zerodha, Dhan, Groww, Upstox, Angel One) have an “IPO” section in their app or web platform. You can also check the NSE/BSE official sites under “Upcoming IPOs” and “Current Issues.”

Step 3: Open the IPO application form

You will see:

• Price band: e.g., ₹100-₹110 per share (you bid at any price in this range)
• Lot size: Minimum number of shares per bid, e.g., 135 shares = 1 lot
• Maximum retail bid: ₹2 lakh total. With ₹110 price, max ~13 lots (1,755 shares)
• UPI ID: Where the bank-block authorisation request will go

Step 4: Select your bid

• Quantity: Multiples of the lot size. 1 lot, 2 lots, etc.
• Price: Most retail investors bid at “cut-off price” (highest price in the band) to maximise allotment chances
• UPI ID: e.g., yourname@oksbi, yourname@ybl, etc.

Step 5: Submit and approve the UPI mandate

After submitting, you receive a notification on your UPI app (PhonePe, Google Pay, BHIM, etc.) requesting authorisation to block your bid amount. Approve within 5 minutes — older mandate requests expire.

The bid amount is now blocked in your bank account, not debited. You see the balance still in your statement but cannot use it. ASBA = “Applications Supported by Blocked Amount.”

Step 6: Wait for allotment

If the IPO is undersubscribed, you get allotted what you bid for. If oversubscribed (which most popular IPOs are), allotment happens by lottery for retail. You either get 1 lot or zero — no partial allotment in retail category.

Allotment notification: Comes via email and SMS, usually 1-2 days after IPO closes. Check status at Bigshare, KFintech, or Link Intime (depends on the IPO registrar).

Step 7: Refund or share credit

• If not allotted: Block on your bank account is released within 1-2 working days. Funds become usable again.
• If allotted: Bank debits the allotted amount, shares credit to your demat account. Listing happens 1-2 working days later.

Step 8: Sell or hold post-listing

On listing day, the stock starts trading at a “discovery price” which may be at, below, or above the issue price. You can choose to:

• Sell on listing day for quick listing gains/losses
• Hold for the long term if you believe in the business

What is Grey Market Premium (GMP)?

GMP is the premium at which IPO shares trade in an unregulated, unofficial market between the IPO closing and listing day. It is essentially a peer-to-peer betting market on what the listing-day opening price will be.

Example: An IPO is priced at ₹450 (upper band). GMP is ₹120. This means:

• Grey market buyers are willing to pay ₹450 + ₹120 = ₹570 per share to lock in pre-listing
• Implied listing price expectation: ₹570
• Implied listing gain: ~27%

GMP is widely tracked on websites like IPO Watch, ChittorgarhIPO, InvestorGain, and crowd-sourced via Telegram channels. It is published anywhere from 1 week before IPO opens to 1-2 days before listing.

What GMP actually reflects

• Aggregate demand from HNIs, dealers, and arbitrageurs in unofficial circuits
• Sentiment driven by subscription numbers (especially QIB and NII subscription multiples)
• Quality perception of the company and pricing
• Overall market mood (bull vs bear)

What GMP does NOT guarantee

• Listing price (GMP and listing price diverge 20-30% of the time, sometimes dramatically)
• Long-term performance (many high-GMP IPOs underperform in 6-12 months)
• Regulatory safety (the grey market is informal, unenforceable)

Important: SEBI does not recognise GMP. The grey market itself operates outside the regulated framework — operators settle in cash, no legal recourse if a party defaults. As a retail investor, you cannot participate in the grey market directly (you would need to know dealers personally and trade on trust).

How reliable is GMP as an indicator?

Historical analysis of Indian IPOs from 2020-2025:

• For GMP > 50% of issue price: listing-day open within ±15% of GMP-implied price about 70% of the time
• For GMP between 10-50%: directional accuracy (positive/negative) about 75-80% but magnitude often differs
• For GMP near zero or negative: high accuracy in predicting flat or negative listing

GMP is useful as a sentiment indicator, especially in the final 2-3 days before listing. It is not useful as a precise price target.

How allotment works for retail investors

Retail Individual Investors (RIIs) are anyone applying ₹2 lakh or less. SEBI mandates the following allotment rules:

• If retail portion subscribed less than 1x: Every applicant gets full allotment (rare for popular IPOs)
• If retail portion subscribed more than 1x: Minimum bid (1 lot) goes to as many applicants as possible via lottery. Remaining shares allotted proportionally for larger bids.

Practical implication: For oversubscribed IPOs, applying for the maximum (13-14 lots for ₹2 lakh budget) gives you only as much chance as applying for 1 lot (₹15,000). You get either 1 lot or zero in the lottery — but the lottery probability is the same regardless of bid size.

Strategy for popular IPOs: Apply 1 lot from multiple demat accounts (yours, spouse, parents, adult children — each with separate PAN). Each PAN is treated as a separate retail applicant in the lottery. This is fully legal as long as each application is from a distinct individual.

Seven common IPO mistakes

1. Applying without reading the DRHP. The prospectus has detailed financials, risk factors, use of proceeds, and competitive landscape. Many IPOs that look attractive in marketing have concerning details buried in the DRHP — high debt, declining margins, pending litigation. Read at least the “Risk Factors” and “Use of Proceeds” sections.

2. Chasing GMP blindly. A high GMP can fade between application and listing day. Several 2024-2025 IPOs had GMPs above 50% during the bidding window that collapsed to flat or negative listings.

3. Bidding below cut-off price. For book-building IPOs, only bids at the discovery price (typically the cut-off) get allotted. Bidding ₹100 when the band is ₹100-110 and final discovery is ₹107 means you do not get allotted.

4. Forgetting to approve the UPI mandate. Mandates expire in 5 minutes if not approved. Many applications fail silently because users miss the notification.

5. Treating IPOs as guaranteed money. Listing-day losses happen. IPOs like Paytm (-27% on listing day), Cartrade (-23%), and several SME IPOs have shown that even hyped issues can list at a discount. Position size accordingly.

6. Selling immediately on listing without checking tax impact. Listing gains held under 12 months are STCG taxed at 20%. If you have other capital losses to offset, plan the sale timing accordingly.

7. Applying with insufficient bank balance. The bank checks balance at submission. If you bid ₹15,000 with only ₹14,000 available, the application is rejected. Maintain buffer in your account.

Should you invest in every IPO?

No. Studies of long-term IPO performance show that:

• Roughly 50-60 percent of mainboard IPOs trade below their issue price within 1 year of listing
• Listing-day gains do not predict 1-year or 3-year returns
• SME IPOs have an even worse track record — many lose 60-80 percent over 2 years

The IPO market is structurally tilted against retail buyers: companies and promoters time their IPO during favourable markets to maximise price; lead bankers price aggressively; lock-in periods (180 days for promoters, 90 days for some pre-IPO investors) often trigger post-listing selling.

A reasonable approach: apply selectively for IPOs where you genuinely understand the business and the price seems fair relative to listed peers. Skip IPOs you do not understand, regardless of GMP. Avoid SME IPOs unless you have specific conviction.

Frequently Asked Questions

What is the minimum amount to apply for an IPO?

The minimum bid is 1 lot at the upper price band. Lot sizes are designed to make minimum bid value approximately ₹14,000-₹15,000. So you need about ₹15,000 in your bank account to apply for any mainboard IPO.

Can I apply for an IPO from multiple demat accounts in my name?

No. SEBI rules say one PAN can apply only once per IPO. Multiple applications from the same PAN get rejected. However, you can apply once per PAN from each family member (your PAN, spouse’s PAN, parents’ PAN, adult children’s PAN).

Can I change my bid after submitting?

You can revise the price band (upward only) and quantity (upward or downward) during the open subscription window. Revision is free — broker apps support it under “Modify Order” in the IPO section.

What happens if the IPO is undersubscribed?

If total demand is less than 90% of the issue size, SEBI rules mandate the IPO be withdrawn. All blocked funds are released. This is rare for mainboard IPOs but happened with some 2022-2023 issues.

Are IPO listing gains taxable?

Yes. If you sell within 12 months of allotment (which most listing-day sellers do), gains are Short-Term Capital Gains taxed at 20 percent. Hold over 12 months for LTCG at 12.5 percent above ₹1.25 lakh exemption. See our capital gains tax guide.

Can NRIs apply for IPOs?

Yes. NRIs can apply through ASBA via NRE/NRO accounts. They are typically allotted under the Non-Institutional Investor category. Some IPOs also have a dedicated NRI quota. Application limits and tax treatment differ from resident retail investors.

What is anchor investor allocation?

Anchor investors are large institutional investors (mutual funds, FPIs, insurance companies) who get a portion of QIB allocation one day before public subscription opens. Their participation is publicly disclosed and used to build market confidence. Anchors have a 30-day lock-in (cannot sell for 30 days post-listing).

Sources & Further Reading