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Bidding for an IPO in India enables investors to bid for shares of a company before it is listed on the stock exchange. SEBI regulates the process, which includes determining the number of shares and their price within the company's price band. Retail investors can join online through their trading and Demat accounts, or offline through ASBA, if they fulfil the eligibility requirements. Understanding the procedures, price alternatives, and allotment criteria enables investors to apply swiftly and properly.
Key Takeaways
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IPO bidding allows investors to apply for shares by selecting the bid price and lot size during an IPO.
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Retail investors (RIIs) in mainboard IPOs can bid up to ₹2 lakh at the cut-off price, with allocation at the final issue price. SME IPOs have different criteria.
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Allotment depends on demand, investor category, and subscription levels.
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Proper research helps avoid common mistakes and improves investment decisions.
What is IPO Bidding?
IPO bidding is the process through which investors apply to purchase shares offered by a company during its Initial Public Offering. Investors submit bids by specifying the number of shares and the price they are willing to pay within the prescribed price band. In book-built issues, the final allotment is based on demand received across different price levels.
The bid price in IPO helps determine the cut-off price after the bidding period closes. Once finalised, shares are allotted to eligible investors based on category, subscription levels, and SEBI guidelines.
How Does IPO Bidding Work?
The IPO bidding process allows investors to apply for shares during an Initial Public Offering within a specified price band or at a fixed price. In a book-built issue, the company sets a price range, and investors place an IPO bid by selecting the number of lots and the price they are willing to pay per share. within a specified price band or at a fixed price. In a book-built issue, the company sets a price range, and investors place an IPO bid by selecting the number of lots and the price they are willing to pay per share.
Multiple bids can be placed at different price points during the bidding window. Once the IPO closes, underwriters analyse all bids received to determine the cut-off price based on overall demand.
Any IPO bid placed at or above the cut-off price becomes eligible for allotment. Shares are then allocated as per investor category, such as retail, NII, or QIB, and subject to subscription levels.
Types of IPO Investors:
IPO investors are categorised based on the value of their application and regulatory classification.
|
Investor Category |
Description |
Reservation (%) |
Notes |
|
Retail Individual Investors (RIIs) |
Individuals applying for up to ₹2 lakh in mainboard IPOs |
≥35% |
|
|
Non-Institutional Investors (NIIs) |
Individuals or entities applying for more than ₹2 lakh |
~15% |
Allotment on a lottery basis |
|
Qualified Institutional Buyers (QIBs) |
Financial institutions that meet SEBI criteria, such as:
|
~50% |
Participation aids price discovery |
|
Anchor Investors |
Sub-category of QIBs committing large investments before IPO opens |
N/A |
Helps build investor confidence |
The Bidding Process
How much to Bid?
Each IPO puts out the minimum number of shares an investor needs to buy to subscribe. This is called a Lot Size. When applying for an IPO, you need to furnish your bidding details as per the lot size mentioned in the prospectus. You must make sure your account has sufficient funds. The maximum subscription amount for retail investors is 2 lakh.
Where to Bid?
You bid for an IPO online through your Demat and online trading account. Most leading broking firms, such as Angel One, offer this facility. An online IPO application is an easy and convenient way of applying for an IPO being listed at a stock exchange. You can also subscribe to an IPO offline - in person by visiting a local office of their broking firm and furnishing the required document, but online applications are now the preferred mode.
What price to bid at?
You can invest at the cut-off price or make bids, but note, that only retail investors can bid at the cut-off price. If you bid at a lower price and the issue/ cut-off price comes in higher, your chances of getting charges are reduced. For instance, if the price band is 90-100, you bid at 93 and the cut-off comes at 96, you are unlikely to get any shares. To increase the chances of allotment, especially in an offer that might be oversubscribed, you need to bid at the cut-off price. But since the cut-off price is not the time of bidding, the application goes through at the Cap Price. The price difference between the application and cut-off price is refunded after allotment if the application price is higher.
How to Bid Online?
All online trading sites and broking firms have an IPO page. This helps you choose which IPO you want to apply to. Enter the number of shares you choose to bid for, along with the bid price along. You can make a maximum of three bids. Once you submit your application, you receive an IPO application number and other transaction details.
Getting the Shares
Often in a successful IPO, demand outstrips the actual number of shares issued in the market. As a result, you can get fewer shares than you had bid for. Sometimes, you might not get allotted any. In such cases, the bank releases your blocked bid money in part or full. If you are fortunate enough to get your full allotment, then you receive a Confirmatory Allotment Note (CAN) within six working days after the IPO process is closed. Once the shares are allotted, they are credited to your Demat account. The next step is to wait for the listing of shares on stock exchanges, which is typically done within seven days. After that you may choose to hold the shares or trade with them. But your IPO subscription is complete!
Things to Know Before Bidding
Before applying for an IPO, it is important that you understand a few key aspects of the issue.
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Carefully read the Red Herring Prospectus (RHP), which contains details about the company’s business model, financial performance, risk factors, and the purpose of raising funds.
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Evaluate the IPO objective as it helps determine whether the issue is meant for expansion, debt reduction, or promoter exit.
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Assessing the company’s valuation is equally important. Compare the IPO price with the company’s earnings, peer valuations, and industry averages to avoid overvalued issues.
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Review the company’s strengths, weaknesses, and future growth prospects.
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Avoid relying solely on market hype or grey market trends when you bid in IPO, as these indicators are unregulated.
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Understand SME rules, as the Small and Medium Enterprise IPOs can have different eligibility criteria, pricing, and allotment rules.
How is IPO Allotment Done After Bidding?
Once the IPO bidding period closes, the allotment process begins under the supervision of the registrar in coordination with the stock exchanges. All applications received during the issue period are first verified to ensure compliance with SEBI guidelines. In book-built IPOs, the final issue price is determined after analysing demand across different price levels, and the bid price in IPO plays a key role in identifying the cut-off price.
If an IPO is undersubscribed, all eligible applicants may receive full allotment. In case of oversubscription, allotment is carried out based on investor categories such as retail investors, non-institutional investors, and qualified institutional buyers. Retail investors are allotted a minimum portion of the issue, and when demand exceeds available shares, allotment is done through a computerised lottery system to ensure fairness.
After the basis of allotment is finalised, it is published by the registrar. Investors can check their allotment status on the registrar’s website or on the NSE and BSE platforms. If shares are allotted, the blocked amount in the bank account is debited, and shares are credited to the demat account. If no allotment is made, the blocked funds are released automatically.
Mistakes to Avoid During IPO Bidding
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Focusing just on listing-day gains: Some IPOs could produce significant debut returns, while others may have price corrections owing to market circumstances or overvaluation.
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Short-term expectations: Making decisions based entirely on anticipated quick profits might result in bad investment outcomes.
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Skipping fundamental analysis: Ignoring the company's financials, business strategy, risk factors, and growth potential in the Red Herring Prospectus exposes you to unanticipated risks.
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Following the subscription hype: High institutional demand or significant grey market premiums may not usually signal long-term value.
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Ignoring valuation metrics: Applying to overpriced IPOs may result in losses if prices correct after listing.
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Not verifying funds or application details: Insufficient funds or inaccuracies in the application might result in rejection.
Conclusion
IPO bidding is a structured process that enables investors to participate in a company’s public offering in a regulated manner. From choosing the right lot size to deciding the bid price in IPO, each step plays a role in determining allotment outcomes. Investors should focus on fundamentals, valuation, and official disclosures rather than short-term market sentiment.
