In the context of stock markets and IPOs (Initial Public Offerings), bidding is a fundamental process where investors express their interest in buying shares at a particular price. Bidding helps determine the offer price and final allocation of shares, making it a critical aspect for investors and companies alike. This guide covers what a bid is in an IPO, how the bidding process works, and tips on placing a successful IPO bid.
In IPOs, a bid represents an investor’s offer to purchase shares at a specified price within a set range. It reflects both the investor’s interest and the price they are willing to pay for a particular stock. The bidding process enables the issuer to gauge demand and helps set a fair offer price before listing on the exchange. The bid price can fluctuate based on market demand and the type of IPO (fixed price or book-building).
There are two primary types of bids associated with IPOs:
In this type, investors place bids at a predetermined price set by the issuing company. The bid price and offer price are fixed and publicly disclosed before the IPO opens for subscription.
This method allows investors to place bids within a specified price range, known as the price band. Investors determine the final offer price based on demand, and the system allocates shares based on the bids they place within the range. This bidding system is commonly used in India’s IPO market because it provides flexibility to both investors and issuers.
You may also want to know Basis of Allotment
To better understand the bidding process in IPOs, let’s explore some essential terms:
Announcement of IPO Price Band and Lot Size:
Before the IPO opens, the company and underwriters announce the price band (minimum and maximum price) and the lot size. This information helps investors decide on their bid price and quantity.
Submission of Bids by Investors:
Investors submit their bids through an online or offline bid application form. The form requires details like bid price, quantity, and DP ID (for Demat account).
ASBA (Application Supported by Blocked Amount):
In India, investors follow the ASBA process for IPO bidding, where the system blocks the bid amount in the investor’s bank account instead of debiting it. If the bids succeeds, the system deducts the amount; if it fails, the amount remains in the account.
Finalization of Offer Price:
After the bidding period closes, the company reviews the bids to determine demand at various price levels. For book-building IPOs, this process results in a price within the price band. The final offer price is then published.
Allotment of Shares:
Based on the demand and bid prices, shares are allotted to investors. Retail investors can check the IPO bids status and allotment results on the registrar’s website.
Listing on Exchange:
After finalizing the allotment, the company lists the shares on the exchange, where investors can buy or sell them on the open market.
The investor offers the bids price per share during the IPO, while the issuing company sets the offer price based on demand. In fixed-price IPOs, the bids price and offer price are the same, as there is no bidding range. In book-building IPOs, the offer price falls within the pre-decided price band and reflects the highest bids price determined during the bidding process.
Investors can place a bid for an IPO through various channels:
In the book-building method, investors place bids at different prices within the price band. The highest bid price refers to the maximum price investors are willing to pay and is often used as a benchmark for setting the final offer price. This price may be close to the upper limit of the price band if demand is high.
The book-building process allows for greater flexibility, as it lets the issuer adjust the offer price based on actual demand. It’s common for institutional investors to place higher bids than retail investors, as they often apply for larger quantities.
After submitting a bid, investors may want to check their IPO bid status to confirm that their application was accepted. Here’s how to do it:
The IPO bidding process plays a crucial role in determining the offer price and demand for shares. By understanding key aspects like bid price, offer price, and ASBA, investors can make informed decisions and increase their chances of a successful IPO application. Whether bidding through a bank ASBA or an online trading platform, careful attention to the price band, bids quantity, and submission guidelines ensures a smooth IPO investment experience.
The bidding price is the price investors offer per share during an IPO. It may vary depending on the price band set by the issuing company.
Investors can check their bid status on the BSE, NSE, or the IPO registrar’s website using their application number, PAN, or other identification.
ASBA (Application Supported by Blocked Amount) is a facility that allows banks to block the IPO amount in an investor’s account until shares are allotted, ensuring funds are only debited if the application is successful.
The cut-off price is the final price determined after the book-building process. Retail investors can select this option to indicate they’re willing to buy shares at the final price, increasing their chances of allotment.
Yes, investors can revise or cancel their bid during the bidding period. Most platforms allow modifications until the last day of the IPO subscription.
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