Applying for your first IPO: from bid to listing day, day by day

October 2023. Riya's mum has never bought a share. But this is her daughter's company, the chai is good, and the newspaper ad says the issue opens next week.

One note before the clock starts. Sameer Chai's issue opened in October 2023, when SEBI's three-day listing timeline was optional. It became compulsory for issues opening from 1 December 2023. We'll follow today's T+3 clock, since that's what any IPO you apply for now will run on. "T" is the day bidding closes.

Before the issue opens, the price band

At least two working days before opening, the company publishes its price band: a floor and a cap. The cap can be at most 120% of the floor and must be at least 105% of it. Sameer Chai's final price came out at ₹40.

The same advertisement gives the lot size, the minimum number of shares you can bid for. SEBI requires that minimum bid to be worth between ₹10,000 and ₹15,000. You bid in multiples of the lot.

For example, at ₹40 a share:

That last row is only an illustration. The real lot is fixed against the price band, not the final price.

The day before opening, anchor investors, large institutions bidding at least ₹10 crore each, are allotted their shares. How many they got, and at what price, is on the exchange websites before you bid.

Which queue is she in?

Every IPO splits the shares into queues. A retail individual investor is anyone applying for up to ₹2 lakh. Above that you're a non-institutional investor. Banks, funds and insurers are qualified institutional buyers (QIBs).

How big each queue is depends on the company's track record:

The test asks for, among other things, average operating profit of at least ₹15 crore over the three years before the issue. Sameer Chai's profit before tax was ₹8 crore even in FY24, the IPO year, so it took the second route.

Opening day, the bid

She applies through her broker's app. Behind it is ASBA, "application supported by blocked amount". The money doesn't leave her account. Her bank blocks it, like a hotel holding a deposit.

For individuals applying for up to ₹5 lakh through a broker or other intermediary, that block runs through UPI. She enters her UPI ID, and a few minutes later her UPI app shows a mandate request. She must approve it, or the bid doesn't count. It must be her own bank account and her own UPI ID. Applications on someone else's are rejected.

She ticks cut-off price. That means "I'll pay whatever final price is set". Only retail investors can do this. The bank blocks the amount at the top of the band, and anything above the final price comes back later.

The days in between

The issue stays open for at least three working days and at most ten. She can change her bid until the last day. The exchanges publish the subscription figures as they come in, by queue. If retail is bid three times over and most people asked for one lot, roughly one in three retail applicants will get shares.

Closing day, T

The clock gets strict now.

• 4 pm: bidding closes for QIBs and non-institutional investors.
• 5 pm: bidding closes for retail. Bids can be changed until then.
• 5 pm: last time to approve the UPI mandate. A bid with an unapproved mandate is dead.

If the company doesn't receive at least 90% of its fresh issue, the whole issue fails and all money must be returned within four days.

T+1, the basis of allotment

The registrar throws out invalid bids, such as a PAN that doesn't match the bank account, and works out who gets what. That plan, the basis of allotment, is due by 6 pm and must be approved by the stock exchange by 9 pm.

For retail, the rule is generous in one way. Each retail applicant gets at least one full lot if there are enough shares. If there aren't, a lottery decides who gets that one lot. Nobody in the retail queue gets a fraction.

For example, if the lot were 300 shares, 20 lakh retail shares make 6,666 lots. With more retail applicants than that, a lottery picks 6,666 of them.

T+2, money and shares move

• By 4 pm: blocked money is released for anyone who got nothing, or less than they bid.
• By 6 pm: shares land in the demat accounts of those who were allotted.
• By 9 pm: the allotment result is on the websites of the company, the registrar and the lead manager.

Riya's mum wasn't picked. On T+2 her block came off, and the money was back in her account to spend.

If your money stays blocked past T+3, the bank owes you compensation: ₹100 a day or 15% a year on the amount, whichever is higher, until it's released. Complain to your bank first.

T+3, listing day

Trading starts. The shares open at whatever buyers and sellers agree, which can be above or below the issue price. From then on the public holds 2 crore of the 5 crore shares, 40%, and those are what trade every day.

Where first-timers trip

• Ignoring the mandate. The UPI request is the bid. No approval, no application.
• A family member's bank account. Applications on a third party's account or UPI ID are rejected.
• Bidding at a fixed price below the final one. If the final price is above your bid and you didn't tick cut-off, you get nothing.
• Reading the DRHP last. Everything about the company was public months before the price band.

This walk-through explains how the process works. It isn't advice on whether to apply for any issue.