IPO cycle

The Initial Public Offering (IPO) cycle is a crucial aspect of financial markets that marks a company's transition from private to public ownership.

In this blog, we'll gain insights into the IPO cycle and help you better assess the opportunities and risks associated with investing in newly public companies. Let's begin!

What is an IPO cycle?

The IPO cycle is an important concept for anyone interested in the stock market. It is the step-by-step process a private company follows to offer its shares to the public for the first time, covering all the steps in initial public offering from planning to listing. This helps the company raise money for growth, paying off debt, or other business goals by attracting a wide range of investors.

The process usually starts when a company chooses investment banks, called underwriters, to help with the IPO. From there, it involves filing paperwork with regulators, promoting the IPO to investors, deciding the share price, and finally starting public trading on a stock exchange. The IPO process timeline requires several months and coordination across departments, including legal, financial, and marketing teams.

The cycle doesn’t stop on the first day the shares are traded. It continues as the company adjusts to being publicly listed, including managing price stability and facing more attention from the market.

Explaining the IPO cycle

The IPO cycle is a systematic process that guides a private company through the complex transition to being publicly traded. It begins with a strategic decision to go public, aimed at raising capital for growth and enhancing the company's market presence. Following this decision, companies engage investment banks to provide expertise in pricing and regulatory compliance.

The next steps involve preparing a comprehensive prospectus, securing regulatory approval in IPO, and marketing the IPO to attract potential investors. Once the offering price is set, shares are made available for public purchase, followed by their listing on a stock exchange. The cycle doesn't end there; post-IPO, companies must navigate ongoing reporting requirements and maintain investor relations to ensure sustained market confidence.

Understanding each phase of the IPO cycle not only helps investors gauge potential opportunities but also informs companies of the responsibilities they must uphold as publicly listed entities.

Detailed understanding of the IPO cycle

A detailed understanding of the phases of IPO cycle is as follows:

1. Decision to go public: The company decides it needs more funds to grow, develop new products, or expand into new markets. Going public allows them to raise this money by selling shares to the public.​This is a strategic move to enhance credibility, visibility, and long-term growth prospects.

2. Hiring experts: The company hires financial experts, like investment banks, to guide them through the IPO process. These experts help determine the company's value and the price of its shares.​They also help structure the IPO and liaise with regulatory authorities and potential investors.

3. Preparing the prospectus: A detailed document called a prospectus is prepared, outlining the company's business model, financial health, and risks involved. This helps potential investors make informed decisions.​

4. Regulatory approval: The IPO approval process involves the company submitting the prospectus to financial regulators for approval. The regulators ensure all information is accurate and complete.​Only after approval can the IPO process move forward to the public offering stage

5. Marketing the IPO: The company and its advisors promote the upcoming IPO to potential investors, often through roadshows and presentations, to generate interest and gauge demand.

6. Pricing the shares: Based on investor interest and market conditions, the final price of the shares is set. This is the price at which the public can buy the shares during the IPO.​A well-priced IPO can drive high subscription rates and strong post-listing performance.

7. Launching the IPO: The shares are made available for purchase to the public. Investors can apply to buy shares through their brokers or banks.​This phase typically remains open for 3–5 days, during which applications are accepted.

8. Allotment of shares: IPO subscription and allotment are a critical stage. If the IPO is oversubscribed (more demand than available shares), not all applicants will receive the full number of shares they applied for. Shares are allotted based on various criteria set by the company and regulators.​

9. Listing on the stock exchange: The full IPO application to listing cycle culminates when the company's shares are listed on the stock exchange, like the National Stock Exchange (NSE), allowing them to be purchased and sold by the public.​The listing day is significant, as it reflects initial market sentiment and investor confidence.

10. Post-IPO activities: After going public, the company must regularly disclose financial results and other significant developments to keep its investors informed. Post- IPO market performance is closely watched by the shareholders and analyst it shows how the company is performing to meet the expectations of the investors. This transparency helps maintain investor trust and complies with regulatory requirements.​

Advantages of an IPO cycle

• Raises capital for expansion: An IPO helps a company raise large amounts of money from the public. This capital can be used to expand business operations, launch new products, or enter new markets.
• Improves public image and trust: Being listed on a stock exchange increases the company’s visibility and reputation. People often trust publicly listed companies more, as they must follow strict rules and be transparent.
• Provides liquidity to shareholders: Existing shareholders, such as founders and early investors, can sell their shares and turn them into cash after the company is listed.
• Attracts more talent: Publicly-listed companies can offer stock options to employees. This makes jobs more attractive and helps the company retain talented staff.
• Enables easier future fundraising: Once a company has gone public, raising more funds in the future becomes easier through follow-on public offers (FPOs) or issuing additional shares.
• Market-based valuation: The company’s value is decided by the stock market, giving a clear picture of how investors see its performance.
• Acquisition opportunities: Publicly listed companies can use their shares to acquire other businesses more easily.

Many new investors are eager to enter the stock market but hesitate due to a lack of clarity around how companies go public. To bridge this gap, it's essential to explain the IPO cycle in a clear and structured manner.

Also Read: The Process of an IPO in India

Conclusion

The IPO cycle marks a company’s transition from private to public by offering shares to the public. It involves several stages, including selecting underwriters, preparing legal documents, and setting a price for the shares. Companies must follow strict regulations to ensure transparency and build investor confidence.

Success depends on timing, market trends, and investor interest. The IPO cycle opens growth opportunities for businesses and gives investors a chance to participate in the success story.

Axis Bank ensures a seamless experience, helping you make informed decisions and take advantage of IPO opportunities with confidence. By opening a Trading Account, you’ll gain access to in-depth research, easy IPO application tools, and expert support to guide you at every step of your investment journey.

Frequently Asked Questions

1. What is the first step in the process of the IPO cycle?

The first step in the IPO cycle is choosing investment banks as underwriters. Companies select these banks based on their reputation, industry knowledge, distribution abilities, and connections with institutional investors. For larger IPOs, multiple banks may form a syndicate, with one acting as the lead underwriter.

2. What is the life cycle of an IPO?

The IPO cycle begins long before a company starts trading on the stock market. It starts with early planning and selecting underwriters, followed by filing necessary documents with regulators as part of the IPO approval process. The marketing phase, including roadshows, comes next, leading to final pricing and the first trading day. After the launch, underwriters may support the stock price for a brief period.

3. What are the key stages of the IPO cycle?

Firstly, the company prepares and submits important documents to the regulators, completing the required regulatory approvals in IPO. Second, during the marketing phase, the company and its underwriters meet with potential investors. Third, in the pricing phase, the final share price is set based on demand from investors. The fourth stage, stabilisation, involves underwriters. Finally, the transition phase begins when the shares start trading normally — this is when post-IPO market performance becomes the key focus for investors and analysts.

Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.