Underwriting is a crucial process in the financial markets where an intermediary, typically an investment bank or financial institution, evaluates and assumes the risk of issuing new securities. This process ensures that companies raising capital through equity or debt instruments can do so efficiently while protecting investors through proper due diligence and valuation. In India, all underwriting activities are regulated by the Securities and Exchange Board of India (SEBI) to maintain transparency and fairness in the capital market.

In an Initial Public Offering (IPO) or Follow-on Public Offer (FPO), the underwriter guarantees that the issuer will raise the intended capital amount. If the public subscription falls short, the underwriter purchases the remaining shares, ensuring the success of the issue. This provides confidence to both issuers and investors. Underwriting is also common in debt securities, rights issues, and private placements, where institutional backing adds credibility to the offering.

The underwriting process involves several steps — evaluation of the company’s financials, assessing market conditions, determining the offer price, and structuring the issue. Based on the level of risk taken, underwriting can be classified as firm underwriting (where the underwriter commits to buy unsold shares) or best-effort underwriting (where they only attempt to sell the issue to investors).

For investors, underwriting serves as a quality assurance mechanism. It indicates that professionals have analyzed the issuer’s business model, financial health, and growth prospects before the securities are made available in the market. However, investors should still perform their own due diligence and review the offer documents and risk disclosures before investing.

Overall, underwriting plays a vital role in capital formation, market stability, and investor protection, making it an essential pillar of the Indian financial ecosystem.