Understanding IPO

An Initial Public Offering (IPO) is a process where private companies sell their shares to the public to raise equity capital. There are two types of IPOs: fixed price offering, where a fixed price is set before the issue is closed, and book building offering, where a 20% price band is offered before bidding, with the final price determined through investor bids.

• The price of an IPO under the fixed-price method is determined in advance. For example, the issuer may announce a price of Rs 200 for its issue. Investors would place their bids at Rs 200. You do not have the option to bid at any other price or cut-off price. Once the issue is closed, you may or may not receive an allotment depending on demand.
• For the book building offering the issuing company announces an IPO price range (e.g., Rs 75 to Rs 80 per share) within which bids for the IPO are accepted. The IPO price is determined at the end of the bidding period based on the demand for the shares at various price levels.