Introduction to IPO Bidding

When a company lists its shares on a stock exchange for the first time, individuals and institutions place bids during the Initial Public Offering (IPO) process. Understanding IPO bidding helps investors make informed choices and enhance their chances of allocation.

An IPO is when a privately held company offers shares to the public via a stock exchange. Companies choose to go public for several reasons:

• To raise funds for expansion, research, debt repayment or acquisitions.
  

• To create a public market for their shares and establish credibility.
  

• To provide liquidity and exit opportunity for early investors.
  

Here’s who you’ll typically encounter in the process:

• Issuer: The company launching the IPO.
  

• Merchant banker/BRLMs: Book Running Lead Managers who manage the IPO process.
  

• Retail individual investors (RIIs): Individuals seeking shares through retail quota.
  

• Non-institutional investors (NIIs): High‑net‑worth individuals.
  

• Qualified Institutional Buyers (QIBs): Large entities such as mutual funds and banks.
  

• Stock exchanges (e.g., NSE, BSE): Platforms where IPOs are listed and traded.

Below is a chronological view of the standard IPO phases:

Draft Red Herring Prospectus (DRHP)

The company files a DRHP with SEBI, outlining business, financials, risk factors and purpose of the IPO. A public review period follows.

Final Prospectus

Post SEBI approval, the final prospectus confirms the IPO size, price band and lot size.

IPO Opening

Investors can bid for shares within the price band and quantity limits.

Bidding Process

Investors choose between a price band bid or a specific price (if allowed), subject to lot size constraints and minimum and maximum limits.

Basis of Allotment

After closure, shares are allotted proportionally based on demand in categories such as retail, NII and QIB.

Listing

Shares are credited to the investor’s demat account and begin trading on the designated date.

Here’s a step-by-step overview for a retail investor:

Step 1: Ensure eligibility: You need a demat and trading account.

Step 2: Access ‘IPO’ section: This is within your broker’s platform.

Step 3: Select the IPO: Enter quantity (in multiples of lot size) and price.

Step 4: Pay application amount: Managed through UPI or ASBA.

Step 5: Track bid status: Monitor allotment outcome and refunds for unsuccessful applications.

Example: ASBA Mechanism

• Blocks funds in your bank account.
  

• Funds only get debited in proportion to allotment.
  

• Offers refund automatically for unallotted portions.

IPO pricing may be fixed or through book building:

• Fixed-price IPO: A set price is announced upfront.
  

• Book-building IPO: Investors bid within a price band. Final price is determined by demand and investor bids.

Investors may wish to join an IPO because:

• You anticipate listing gains if demand is high.
  

• You want early ownership in a promising company.
  

• It forms part of a diversified investment approach.
  

While IPOs may look lucrative, there are several risks:

• Market risk: Prices may fall after listing.
  

• Uncertain valuation: Some IPO valuations may be aggressive.
  

• Lock-in periods: Promoters might be restricted from selling for a defined time.
  

• Allocation limits: You might receive fewer shares than applied for.

Allotment follows these quotas:

• Retail quota: Typically 35%, accessible to all investors.
  

• NII quota: Shares reserved for high‑net‑worth individuals.
  

• QIB quota: Shares reserved for institutions.

Unsuccessful bids lead to automatic refund of blocked funds via UPI or ASBA. Partially allotted bids clear the amount corresponding to shares allotted.

• Read the prospectus carefully—understand risk sections and business models.
  

• Do not treat IPOs as investment advice; they are purely informational.
  

• Track allotment status and keep updated through exchange notices or broker alerts.

Investors should consider the following:

• Time IPO bids around market sentiment.
  

• Determine a suitable bid price ideally at the lower end of the band.
  

• Decide allocation limits and avoid overbidding beyond capacity.

Once shares are listed, keep track of:

• Listing-day price movement.
  

• Peer company results.
  

• Company’s quarterly earnings and news announcements.
  

This overview explains how the IPO process works from DRHP filing to listing. By understanding roles, procedures, pricing, allotment, and associated risks, you can participate in IPOs with clarity.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.