How an IPO Works - Step-by-Step Guide for NRIs

Every few months, a big Indian company announces its IPO and our WhatsApp community explodes with questions.

"Should I apply?" "How do I apply from Dubai?" "What happens if the market falls before listing?"

At Belong, we have guided hundreds of NRIs through IPO decisions. The problem is not that NRIs lack interest. It is that the process is poorly explained. Most articles skip the middle.

From DRHP filing to Demat credit, the steps between are rarely explained well.

This is the article we wish existed when those questions started pouring in.

We cover how a company prepares, what happens during subscription, how allotment works, and what NRIs must do differently.

What an IPO Actually Is

An IPO, or Initial Public Offering, is how a private company sells shares to the public for the first time. It then lists on a stock exchange like the NSE or BSE.

Before an IPO, ownership is held by founders, early investors, and private equity funds. After an IPO, anyone with a Demat account can become a shareholder.

Companies go public for several reasons.

They want to raise fresh capital for expansion. Early investors want an exit. The company wants public visibility and credibility.

An IPO is not charity. It is a transaction - the company needs your money, and in return you get a stake in its future.

👉 Tip: Always read the Red Herring Prospectus (RHP) before applying. It contains everything about the company's financials, risks, and intended use of IPO funds. It is publicly available on the SEBI website.

Phase 1: How a Company Prepares for an IPO

Most NRIs only see the application window. But a lot happens before that.

Appointment of lead managers.

The company appoints Book Running Lead Managers (BRLMs), typically investment banks like Kotak, Axis, or ICICI Securities.

They advise on pricing, handle regulatory filings, and underwrite unsold shares.

Filing the DRHP with SEBI.

The company files a Draft Red Herring Prospectus (DRHP) with SEBI. This document contains the company's financials, business model, promoter details, risk factors, and how the IPO proceeds will be used.

SEBI reviews it and issues an observation letter. The entire DRHP process typically takes three to six months.

Exchange approval.

The company also applies to NSE, BSE, or both for in-principle listing approval. Exchanges check compliance and financials before granting approval.

Price band and RHP filing.

After SEBI approval, the company files the final Red Herring Prospectus (RHP) with the Registrar of Companies.

The price band is announced - for example, Rs 480 to Rs 500 per share.

Roadshows and anchor allotment.

In the two weeks before the IPO opens, the company's management meets institutional investors (QIBs) across financial cities.

This is the roadshow. On the day before subscription opens, anchor investors (large institutions) are allotted shares at the issue price. This signals institutional confidence in the IPO.

Phase 2: IPO Types - Fixed Price vs Book Built

There are two types of IPOs in India.

Fixed Price Issue:

The company sets a single price and investors apply at that price. Less common for mainboard IPOs today.

Book Built Issue:

A price band is announced, say Rs 480 to Rs 500. Investors bid at any price within the band. After subscription closes, the registrar determines the cut-off price.

This is typically the upper end of the band when an IPO is oversubscribed. Most NRIs should bid at cut-off to maximise allotment chances.

Phase 3: The Subscription Window - What Happens When You Apply

The IPO is open for three working days. During this window, investors submit bids.

Here is what the process looks like for NRIs.

What you need before applying:

• A PAN card

• An NRE or NRO savings account (non-PIS)

• An NRI Demat account linked to that bank account

• A trading account (needed for selling shares after listing; not mandatory for the IPO application itself)

NRIs do not need a Portfolio Investment Scheme (PIS) account for IPO investments, as confirmed by RBI guidelines. IPO transactions are outside the PIS framework.

The ASBA process.

SEBI has mandated that all IPO applications use ASBA (Applications Supported by Blocked Amount). When you submit an application, the bid amount is blocked in your bank account - not debited. If you get allotment, the exact amount is debited.

If not, the block is released automatically. Your bank must be a SEBI-registered SCSB (Self-Certified Syndicate Bank). Major Indian banks like HDFC, ICICI, Axis, and SBI support ASBA for NRI accounts.

How to apply online:

Log into your NRE or NRO net banking. Go to the IPO investment section. Select the IPO. Enter your bid price (we recommend cut-off price) and quantity in lots. Enter your Demat account number. Submit. Your bank confirms the block.

👉 Tip: NRIs based in the US and Canada face restrictions on certain IPOs. Many issuers exclude US and Canada NRIs due to securities law compliance issues. Always check the RHP before applying.

Lot size explained. You cannot bid for any arbitrary number of shares. IPOs are offered in lots. Each lot has a fixed number of shares.

The minimum application amount for retail investors is approximately Rs 15,000, though it varies per IPO. Retail investors are those applying for up to Rs 2 lakh.

Applications above Rs 2 lakh fall under the Non-Institutional Investor (NII) or HNI category.

Investor categories. An IPO is divided across four investor buckets:

NRIs can apply in either the Retail or NII category depending on their application size.

Phase 4: Subscription and Oversubscription

During the three-day window, the registrar tracks bids in real time. Subscription data is published daily on the NSE and BSE websites.

An IPO is described as subscribed when total bids equal 100% of shares on offer. An oversubscribed IPO means bids exceed available shares.

A 50x oversubscribed IPO means 50 times more investors bid than there are shares available.

Oversubscription in the QIB category is a strong signal. Institutional investors - mutual funds, FIIs - do rigorous due diligence. When they pile in, it typically reflects genuine fundamental confidence.

Oversubscription in the retail category is partly driven by GMP excitement and FOMO. It is a weaker signal than QIB numbers. We have written a full guide on how to read GMP and why it should not be your only filter.

Phase 5: Allotment - Who Gets Shares and How

After subscription closes, the registrar runs the allotment process.

Retail category (up to Rs 2 lakh):

If the IPO is oversubscribed in the retail category, allotment is done by lottery. Each applicant gets either one lot or nothing.

Applying for more lots does not increase your chances.

What increases your chances is using multiple family member accounts - each PAN-linked account counts as a separate application. However, never apply twice from the same PAN. That leads to rejection of both applications.

NII/HNI category (above Rs 2 lakh):

Allotment is proportionate. If the NII category is 10x oversubscribed, you get 10% of your bid quantity. Larger bids get proportionately more shares.

Timeline after subscription closes:

Allotment is typically finalised within six working days of IPO closure. Shares are credited to your Demat account one day before listing. Unallotted funds are released from the block.

👉 Tip: Check your allotment status on the registrar's website using your PAN or application number. Major registrars are KFin Technologies and Link Intime India.

Phase 6: Listing Day - What to Expect

Listing happens on the NSE or BSE, typically six to seven working days after IPO closure.

The stock exchange conducts a pre-open session from 9:00 AM to 9:45 AM on listing day. Orders are matched and the opening price is determined during this window.

Normal trading begins at 10:00 AM (source: NSE).

The opening price can be above or below the issue price. It depends on market sentiment, institutional demand, and how accurate the GMP turned out to be.

For NRIs, selling on listing day involves a few extra steps.

The shares are in your NRI Demat account. You sell through your trading account. Proceeds go to your NRE or NRO bank account depending on which account funded the IPO application.

Repatriation of listing gains.

If you applied through your NRE account, proceeds and gains are fully repatriable. If through your NRO account, repatriation is capped at USD 1 million per financial year.

This is subject to tax compliance, per RBI's FEMA guidelines. For a full breakdown, read our repatriation guide.

Phase 7: Taxation for NRIs on IPO Gains

This is where many NRIs get surprised after listing day.

Short-term capital gains (STCG): If you sell within 12 months of allotment, gains are taxed at 20%. This is under Section 111A of the Income Tax Act, amended by the Finance Act 2024 (source: Income Tax India).

Long-term capital gains (LTCG): If you hold for more than 12 months, gains up to Rs 1.25 lakh are exempt. Gains above that are taxed at 12.5% under Section 112A.

TDS applies to NRIs. Unlike resident Indians, NRIs are subject to TDS on gains at the time of sale. Your broker deducts this before crediting proceeds. You can claim a refund if you are in a lower tax bracket by filing your ITR.

DTAA benefits may reduce your effective tax liability. If you are a UAE resident, the India-UAE DTAA currently does not exempt capital gains, but it prevents double taxation. Read our detailed guide on NRI investment taxation.

👉 Tip: Always factor post-tax returns when evaluating an IPO. A 25% GMP translates to roughly 20% post-STCG. After broker charges and TDS, the net gain could be closer to 18 to 19%.

What Most Blogs Miss: The NRI Timing Problem

Here is something we rarely see covered elsewhere.

When you invest from Dubai, you are dealing with a time-zone gap. The IPO subscription window closes at 5 PM IST.

That is 4 PM UAE time - typically during work hours. Listing happens at 10 AM IST, which is 9 AM UAE time.

This timing gap means most NRIs cannot monitor their applications or exit positions in real time.

By the time you check the listing price from work, the stock may have already moved significantly from its opening.

The practical implication: NRIs who apply purely for listing-day gains face execution risk.

Apply only in IPOs you are comfortable holding for six to twelve months if listing disappoints.

Mainboard IPO vs SME IPO: Which Should NRIs Choose?

India has two IPO markets. Mainboard IPOs list on NSE or BSE and require larger capital raises. SME IPOs list on NSE Emerge or BSE SME, have smaller lot sizes and much lower liquidity.

For NRIs, we strongly recommend avoiding SME IPOs unless you have deep research capability.

SME IPOs have thinner trading volumes, higher volatility, and are more susceptible to grey market manipulation. Many have listed well only to fall sharply within weeks.

Stick to mainboard IPOs from SEBI-regulated companies with transparent financials.

GIFT City IPOs: A Different Route for NRIs

One thing most NRIs in our community do not know: there is now an IPO route specifically designed for them.

GIFT City, India's International Financial Services Centre, allows companies to list on exchanges like NSE IFSC. NRIs can invest in GIFT City IPOs using foreign currency, without converting to rupees.

The tax treatment is different too. Income earned through the IFSC framework can be structured to be tax-exempt under Section 10(4D) of the Income Tax Act. This depends on the instrument and structure used.

We have covered this in our GIFT City IPOs vs Indian IPOs guide. There is also a separate article on tax on GIFT City IPO investments.

Already using GIFT City for mutual funds, FDs, or AIFs? The IFSC IPO route is a logical next step.

Our IPO hub has the full product suite.

A Full IPO Timeline at a Glance

How to Evaluate an IPO Before Applying

We get this question constantly: "How do I know if an IPO is worth applying for?"

Here is the quick framework we use at Belong:

Profitability.

Is the company already profitable? Loss-making companies can still list well if the growth story is strong, but they carry more risk.

Valuation vs peers.

What P/E or P/S multiple is the IPO priced at compared to already-listed peers? An overpriced IPO rarely sustains its listing gains.

Use of IPO proceeds.

Is the company raising fresh capital for growth, or is the IPO mainly an Offer for Sale (OFS)? In an OFS, existing investors cash out - no new money goes into the business.

QIB subscription.

As subscription numbers emerge over the three-day window, QIB oversubscription is your strongest fundamental signal.

Promoter track record.

Check if promoters have pledged their shares, faced regulatory action, or have a history of poor governance.

For a broader view on how to invest in India as an NRI, our team has covered common pitfalls extensively.

👉 Tip: An OFS-heavy IPO with no fresh capital component means founders are cashing out. That is not necessarily bad, but it means the company is not raising money to grow - it is redistributing ownership.

FAQ

Can NRIs apply for Indian IPOs from the UAE?

Yes. NRIs can apply through their NRE or NRO savings accounts using the ASBA process. Your bank must be a SEBI-registered SCSB. No PIS account is required for IPO applications, per RBI guidelines.

Can NRIs apply in both NRE and NRO accounts for the same IPO?

No. Both accounts are linked to the same PAN. Applying from two accounts for the same IPO leads to rejection of both applications.

What is the minimum investment for an NRI in an IPO?

The minimum is one lot, which is typically priced between Rs 13,000 and Rs 15,000 for retail investors. The exact lot size and price vary per IPO and are listed in the RHP.

Are IPO gains tax-free for NRIs?

No. Gains from selling IPO shares are subject to capital gains tax. STCG (sale within 12 months) is taxed at 20%. LTCG (sale after 12 months) above Rs 1.25 lakh is taxed at 12.5%. TDS is deducted by your broker on NRI accounts.

What is the difference between a GIFT City IPO and a regular Indian IPO?

Regular Indian IPOs list on NSE or BSE and require rupee investment. GIFT City IPOs list on NSE IFSC within India's IFSC framework. NRIs can invest in foreign currency. The tax framework is different and potentially more favourable under IFSCA regulations.

What happens to my money if I don't get allotment?

Under ASBA, your application amount was only blocked, not debited. If you are not allotted shares, the block is automatically released within one to two working days after allotment finalization.

The Bottom Line

An IPO is not a lottery. It is a structured process. A company files its DRHP with SEBI, goes through months of regulatory review, then opens a three-day subscription window. Allotment follows, then listing.

As an NRI, you can participate fully. But you need the right accounts, the right information, and the right expectations.

The best IPO strategy for NRIs is not to chase every listing gain. It is to apply selectively, hold when necessary, and factor in post-tax returns from the start.

For NRIs interested in the GIFT City IPO route, start with our GIFT Nifty tracker. It offers currency flexibility and potentially better tax treatment. Also read our guide on how NRIs can invest in GIFT City IPOs.

Many NRIs in our community discuss upcoming IPOs, share due diligence notes, and help each other decide. Join our WhatsApp community and ask us directly.

Download the Belong app to explore GIFT City mutual funds, NRI FD rates, and alternative investment funds. Fund options include the Tata India Dynamic Equity Fund and DSP Global Equity Fund. Also available: Edelweiss Greater China Equity Fund and Sundaram India Mid Cap Fund.

You can also explore mutual fund products through the Belong platform.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Belong is a SEBI-registered investment advisor. IPO investing involves market risk. Please consult a qualified financial advisor before making investment decisions.