Are Confidential IPOs Safe Bets For Retail Investors?

The Indian stock market is witnessing a new era of IPO filing, called confidential IPOs, a trend that startups like Meesho, Groww, Tata Capital, BoAT, and Lenskart are considering to debut on BSE and NSE. While confidential IPOs give more power to companies, what about retail investors who are looking to enter the stock market through the conventional method?

For retail investors, confidential IPOs are like the unknown until the official draft prospectus is made public, but the timeframe to navigate these companies is less than the normal IPO filing practice.

What Is Confidential IPO?

A confidential IPO is when a company files a draft prospectus for an IPO with the market watchdog SEBI privately. Hence, no public disclosure is made for investors to review the draft red herring prospectus (DRHP), which includes company risks, strategies, outlook, business performances, sector risks and opportunities, and objectives of the IPO.

The concept has been implemented since November 2022, after SEBI allowed pre-filing of the draft prospectus for an IPO without releasing it to the public domain. This is optional and available for all companies that wish to debut on mainboard stock exchanges.

The PDRHP process has been introduced primarily for issuers who wish to keep their business information confidential at the initial stages of the IPO process and until a definitive decision on the IPO is made by the issuer. New-age U.S. companies like Airbnb, Lyft, Spotify Technology, Uber Technologies. Snap, among others, has opted for this route, as per a Khaitan & Co's one report.

What is missing in this type of IPO is the keyword "transparency".

Stages of Confidential IPOs:

There are at least five stages of processing confidential IPOs.

Stage 1:

- File confidential IPO draft with SEBI through lead managers.

- The issuer should file the pre-filed document with the stock exchanges, stating where their specified securities are proposed to be listed.

- Within 2 days of filing the confidential IPO draft, public announcements should be made by companies, revealing details of the intended issue.

- SEBI's guidelines have prohibited companies from marketing the IPO until final approval.

Stage 2:

- The IPO will be under SEBI's observation.

- SEBI can recommend any changes or issue observations on the pre-filed draft offer document.

- The issue and lead managers will be required to carry out such changes in the pre-filed draft offer document and submit to SEBI an updated draft within 30 days of the timeframe from receiving the observations.

Stage 3:

- This stage will be of filing an updated draft red herring prospectus (UDRHP-I) with SEBI within 16 months from the regulator's issuance of observation.

- Updated draft red herring prospectus—I shall be made public for comments, if any, for a period of at least twenty-one days from the date of filing.

- Issuer will have the opportunity to make a public announcement within 2 days of filing the updated draft.

- A minimum gap of seven working days is allowed from the date of intimation of the updated draft to SEBI, to the closure of QIB (qualified institutional buyers (QIBs) interaction.

- Advertisement restrictions become applicable.

Stage 4:

- Issuer or lead managers should submit an updated draft red herring prospectus-II with SEBI before filing the offer document with the Registrar of Companies or an appropriate authority.

- The copy of the offer document shall also be filed promptly with SEBI and the stock exchange(s) through the lead manager(s) after filing the offer documents with the Registrar of Companies.

- Also, the lead manager(s) and the stock exchanges shall provide copies of the offer document to the public as and when requested and may charge a reasonable sum for providing the same.

Stage 5:

Upon receiving all approvals, the company or lead managers can decide issue price, floor price or price band; IPO dates; and anchor investing date during the 18 months preceding the date of filing of the DRHP / RHP.

Why Confidential IPOs Are Gaining Popularity.?

"Unlike traditional IPOs, where the DRHP is made public upon filing, the confidential route allows companies to submit documents privately to SEBI, with public disclosure occurring only after regulatory review," said Gaurav Garg, Lemonn Markets Desk.

"This approach, inspired by the U.S. model, is gaining traction among Indian startups seeking to go public amidst funding volatility. It shields sensitive business information from competitors, reduces reputational risk in case of delays or withdrawals, and gives companies more time to address regulatory feedback and time the market optimally."

Are Confidential IPOs a safe bet for retail investors?

According to Garg, confidential IPOs also compress the timeline for investor scrutiny-especially retail investors—who get less visibility and a shorter window to evaluate the offer. While the DRHP still adheres to disclosure norms, there's no early buzz or extended pricing sentiment to assess."

A confidential IPO doesn't imply lower quality. SEBI's early involvement can lead to a more refined prospectus. For seasoned investors, this route could offer cleaner opportunities with fewer market distractions. For everyday investors, it calls for greater alertness and faster decision-making, the expert's note added.

"Ultimately, the rise of confidential IPOs signals a maturing Indian capital market-where companies go quiet first to make a stronger, more strategic public debut later," Garg added.

Difference Between Confidential IPO Filing vs Public IPO Filing:

Source: Alice Blue Report

Expect More Digital IPOs Ahead!

First, investors in India—both retail and institutional—now better understand digital businesses. Metrics like customer acquisition cost (CAC), lifetime value (LTV), and retention rates are no longer unfamiliar. These are now part of regular investment evaluations.

Second, regulators have adapted. SEBI's changes—including allowing high-growth, loss-making firms to list—have opened doors for more digital IPOs. The market focus is shifting from short-term profits to long-term value, as per Bay Capital's Latest white paper.

As per the whitepaper, nearly 40 of them—operating in consumer internet and tech-led models—are now listed on Indian stock exchanges. Together, they represent about Rs 8 lakh crore (~$90 billion) in market value. It added, as more businesses reach profitability and scale, the overall value of India's digital sector is expected to rise steadily.