Level 3 · Module 1 · The Basics
Shares, Companies & IPOs
A share is a slice of a real business, not a lottery ticket with a ticker.
In this lesson
What you'll be able to do
- Explain what a share represents
- Understand why companies list
- Follow an IPO from filing to listing
Think about it
When you buy one share of a company, what have you actually bought a piece of?
Story
Let's picture it
Imagine your friend's cloud kitchen needs ₹10 lakh to open two more outlets. She could borrow it (debt, she must repay with interest) or sell 20% ownership to you for ₹10 lakh (equity, no repayment, but you now own a fifth of the profits and the losses). Multiply that idea by a few thousand crore and add a stock exchange, and you have the equity market.
Visual
How an IPO works
- 1
Decide to raise
Company appoints merchant bankers
- 2
DRHP filed
Draft prospectus submitted to SEBI, made public
- 3
SEBI observations
Regulator reviews disclosures
- 4
Price band + dates
RHP with band, lot size, issue window
- 5
Bidding
Retail, HNI and institutional categories bid via ASBA/UPI
- 6
Allotment
Basis of allotment; oversubscribed retail goes to lottery
- 7
Listing
Shares begin trading on NSE/BSE
Plain English
The simple explanation
A share is a unit of ownership. Own 1 of 1 crore shares and you own one-crore-th of the company's profits, assets and voting rights.
The primary market is where new shares are issued (IPO/FPO). The secondary market is where existing shares change hands between investors, the company gets no money there.
Listing does not make a company good. It makes it transparent, liquid and regulated. Those are different things.
Real world
IRCTC
IRCTC's IPO was widely followed by retail investors and its listing moves were dramatic in both directions over the following years. Same business, same tickets sold, the price still swung hard, because price reflects expectations, not just operations.
Watch out
Common mistakes
- Applying to IPOs only for listing gains without reading the DRHP
- Believing oversubscription means quality
- Thinking buying in the secondary market funds the company
Did you know?
The DRHP is a free, public document listing a company's risks in its own words. The 'Risk Factors' section is often the most honest page in Indian finance.
Your turn
Mini challenge
Open any recent DRHP and read only its Risk Factors section for five minutes. Note two risks you hadn't considered.
Quick quiz
1 / 3
Wrap up
Summary
Shares are ownership slices. IPOs move a company from private to public; the secondary market just reshuffles ownership.
- Share = ownership slice
- Primary market funds the company; secondary doesn't
- Read the DRHP risk factors
Revise