Wall Street is all set for one of its most anticipated stock market debuts in recent times – SpaceX. At a time when the Indian IPO market is seeing a relatively muted phase, big IPOs in the US, like the Elon Musk-owned SpaceX and the big-ticket AI play OpenAI, are generating significant investor interest. As Indian investors explore avenues to participate in these issues, the difference in the IPO process in the US and India also comes to focus.
From striking institutional underwriting risks to size of the issues and the language of the offer documents, industry observers list out some of the contrasting elements of the overall IPO process.
New issue risk: How US firm commitments diverge from direct allotment
The process followed by companies to launch the issue has key differences. When we compare the IPO process followed in the US with how new issues are launched in India, the difference in the merchant banker’s role comes to the fore. In the US, the merchant banker buys the shares, unlike in India, where the company allots directly to the investors.
Subhayu Sen, Partner at Khaitan & Co explained, “In America, what they do is the merchant bankers first buy the shares and take them on their books and then sell the shares to the investors. So the entire risk is passed on to the merchant bankers. Meanwhile in India, the risk doesn’t pass on to the merchant bankers. The risk is entirely upon the company. So that is one fundamental difference.”
He also pointed out that the other key difference that’s apparent in the IPO process is the way the offer document is written. While in India, the use of adjectives is fairly limited and needs to be backed by third-party claims, it is relatively more relaxed in the US.
Sen elaborated on the difference using the offer document for the Ferrari IPO – “In America, you can use adjectives. For example, before the Ferrari IPO came out about 10 years back, they wrote things like, ‘this logo is the most recognised,’ and ‘it is one of the most recognized car brand.’ And there was no external party who was standing behind those statements. I think there is an element of trust and belief that is there in American companies and the regulators.”
In contrast, Sen highlighted how adjectives in an offer document are used with great caution in India. “Obviously, the merchant banks are liable for any mis-statement in the prospectus, but the language in the offer document is a little more adjectivised over there than in India. Adjectives can be used in Indian documents also as long as there is a verification of that. So if you say that we are the largest manufacturer of so-and-so in India, then there needs to be an industry expert who needs to back that.”
Structural certainty Vs evolving frameworks
The other key point to note is the concept of a no-action letter, prevalent in US. The no-action letters are essentially letters issued by the SEC or the US Securities Commission, that they are okay with certain aspects which might in some way be contrary to that law or bending of that law.
Sen pointed out that this “no-action letter implies that SEC won’t take any action against the company. From the 1970s till now, there have been a very limited number of no-action letters, maybe 50 odd in maybe 50 years.”
He compared this with the situation in India and added that “in India, the law changes. It’s a more dynamic regime in India. The regulatory certainty is a bit lesser because the regulator is relatively young compared to the US regulators. The Indian stock market is still relatively young. They keep changing regularly. Every couple of months, a new view is taken on a concept and so on and so forth. So Indian regulators are trying to evolve with times.”
According to him, “In the case of US regulators, there is a little more certainty in the regulatory regime because of the years of experience that they have had over and above what we’ve had.”
India Vs US: IPO market size
Another striking difference is the issue size. Geoff Dennis, an independent emerging markets expert, explained that “the main difference between the IPO process in US and in India relates to the much larger size of the pool of investor money in the US. This means more potential demand (including from overseas investors), although this has not been reflected in heavy IPO activity in the US in recent years.”
He added that the “US equity market has shrunk on an annual basis with share buybacks exceeding new issuance. This will change this year with the huge IPOs already announced by SpaceX and OpenAI, with more likely to follow, all of which have to be absorbed into investor portfolios.”
Conclusion
While the broad processes for a new issue are similar, a probe into the details reveal the actual differences. Given the fact that the US markets are significantly more mature and Indian markets are in the process of evolution, there are many operational differences in the IPO process.
Disclaimer: Whether you are tracking global market developments or considering participating in US initial public offerings (IPOs), the structural, regulatory, and mechanical framework of overseas stock markets differs significantly from India’s SEBI-regulated ecosystem. Investing in international equities involves distinct operational rules, jurisdictional gaps, variable underwriting risks, and currency fluctuations that can impact overall returns. This content is for informational and educational purposes only and does not constitute an offer, solicitation, or direct investment recommendation; readers should consult a qualified financial advisor and ensure complete awareness of Liberalised Remittance Scheme (LRS) limits before making cross-border investment decisions. This disclaimer has been generated using AI to support user well-being and responsible content consumption.