Definition
IPO Grading
IPO grading was a SEBI mechanism where a credit rating agency assigned a grade to an IPO indicating the relative fundamentals of the issuer.
Introduced as mandatory in 2007, IPO grading required a registered credit rating agency to grade an issue on a 1-to-5 scale, with 5 indicating strong fundamentals. The grade was disclosed in the offer document so retail investors could gauge quality.
SEBI made IPO grading voluntary in 2013 and it has since fallen out of use, as the grades often failed to predict listing performance and added cost without clear benefit. The term is now largely of historical interest in the Indian primary market.
Related terms
- Credit RatingA credit rating is an independent agency's assessment of a borrower's ability to repay debt, ranging from AAA (safest) down to D (default).
- Draft Red Herring Prospectus (DRHP)A DRHP is the preliminary offer document a company files with SEBI when it wants to make an IPO, disclosing its business, financials and risks but not the final issue price.
- Merchant Banker / BRLMA merchant banker, acting as Book Running Lead Manager (BRLM), is the SEBI-registered intermediary that manages an IPO from filing to listing.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.