How To Bid In An IPO - Learn It All

Investing in an Initial Public Offering (IPO) is often viewed as an excellent way to be part of a company’s early growth story. However, many first-time investors feel uncertain when it comes to placing a bid within the given price band.

That’s why understanding what is a bid in an IPO, ipo bidding process and knowing how to bid in an IPO correctly is essential to improve your chances of getting a share allotment.

What is Bid in IPO?

In an IPO, a bid is simply an investor’s request to buy a certain number of shares at a chosen price. It shows how much the investor is willing to pay for the company stocks. These bids help the company and underwriters understand overall demand and decide the final price at which the shares will be offered before listing on the stock exchange.

How to Bid for IPO: Step-by-Step Guide

Participating in an IPO involves a clear set of steps. Here’s a simple guide to how IPO bidding works for retail investors:

Step 1: Follow the Checklist -

Before you apply, make sure you have the following:

• A PAN Card
• An active Demat account with a Depository Participant (DP)
• A trading account linked to your Demat account
• A bank account enabled with ASBA (Application Supported by Blocked Amount)

Step 2: Check IPO Details -

Carefully read the Red Herring Prospectus (RHP). It contains important information about the company, including financials, price band, ipo lot size, and how the raised funds will be used.

Step 3: Choose Application Method -

You can pay for the IPO via Netbanking (ASBA) or through a UPI mandate. Ensure that sufficient funds are available in your bank account for the bid.

Step 4: Place Your Bid -

Decide how many lots you want to apply for and select a bid price in IPO within the price band, or choose the cut-off price option. Submit your application online through your broker or bank.

Step 5: Monitor Bid Status -

The IPO subscription period usually lasts three working days, with the bidding window open from 10 a.m. to 5 p.m. During this time, you can modify or cancel your bid if needed. Some brokers may also provide a pre-application period.

Step 6: IPO Allotment Process -

The allotment of shares is finalised within three working days after the IPO closes. Investors can check their IPO allotment status on the registrar’s website or on stock exchange portals.

Step 7: Fund Deduction or Release -

If your bid is successful, the blocked funds in your bank account are deducted, and the allotted shares are credited to your Demat account. If you are not allotted shares, the blocked amount is automatically released.

Step 8: Listing of Shares -

The allotted shares are listed on the respective stock exchange within six working days from the IPO closing date, allowing investors to trade them once listed.

How Does IPO Bidding Work?

Now that we know what an IPO bid means, let’s understand how ipo bidding works. The IPO bidding process follows certain steps and rules to ensure fair share allocation. Here’s how it works in simple terms:

There are two main ways companies offer shares: book building and fixed price. In the book-building method, the company sets a price range, and investors place their bids within that range. In a fixed-price IPO, the share price is already decided, and all investors apply at the same price.

When bidding, investors mention how many shares they want to buy and the price they are willing to pay per share. They can apply for ipo either online or offline through their broker or bank.

Once the bidding period ends, the company and its underwriters review all bids and decide the cut-off price (the final issue price at which shares will be allotted). Investors who bid at or above this cut-off price become eligible for share allotment. The final allocation depends on factors like investor category, number of shares applied for, and overall demand (subscription levels).

An IPO can be undersubscribed (fewer bids than shares) or oversubscribed (more bids than available shares). After the process, investors can check their IPO allotment status online to see if they’ve received any shares.

Types of Bids in an IPO

The type of bid in an IPO depends on the pricing method used by the company, which can be either Fixed Price or Book-Built.

1. Fixed Price IPO Bidding:

• Single Price: The company sets a specific price for the shares, and investors must apply at this exact price.
• No Price Flexibility: Investors cannot choose a different price, as there is no bidding or price discovery process.
• Application: Investors simply submit their application to buy shares at the fixed offer price set by the company.

2. Book-Built IPO Bidding:

• Price Band: The company provides a price range, with a minimum (floor price) and maximum (cap price).
• Bid with Price and Quantity: Investors specify how many shares they want and the price they are willing to pay within the band.
• Multiple Bids: In book-built IPOs, investors can often place multiple bids with different prices and quantities to improve their chances of getting shares.
• Cut-Off Price: After the bidding period ends, the final IPO price (cut-off price) is set based on overall demand.
• Allotment: Shares are allocated to investors who bid at or above the cut-off price.

Factors to Consider Before Choosing Bid Price in IPO

Selecting the right bid price in an IPO is important to improve your chances of getting shares and making a good investment.

Here are the key factors to consider:

1. Company Fundamentals: Check the company’s financial health, revenue growth, profitability, and debt levels. A strong company is more likely to perform well after listing.

2. Price Band Analysis: Understand the IPO price band (floor and cap price). Compare it with the company’s valuation and decide on a reasonable bid price.

3. Market Sentiment: Look at current market trends and investor interest in the IPO. High demand may increase the cut-off price, so consider this when placing your bid.

4. Investment Objective: Decide whether you are investing for listing gains (short-term) or long-term holding. Your strategy may influence whether you bid at the floor, cap, or cut-off price.

5. Subscription Status: Monitor IPO subscription data during the bidding period. Oversubscribed IPOs have higher competition, and bidding closer to the cut-off price may improve allotment chances.

6. Lot Size and Multiple Bids: Ensure your bid follows the minimum lot size and, if allowed, consider placing multiple bids with different price points to increase your chances of allocation.

Conclusion

Understanding how the IPO bidding process works is essential for every investor looking to participate in public offerings. The bid price not only determines how much you pay per share but also affects your chances of allotment. By carefully analysing the company’s fundamentals, price band, market sentiment, and your investment goals, you can make informed decisions and improve your chances of success.

FAQs

What is bid price in IPO?

The bid price in an IPO is the price at which an investor is willing to buy shares during an IPO. In book-built IPOs, it can be any price within the price band, while in fixed-price IPOs, it is the set offer price.

What does IPO bid mean?

An IPO bid is an investor’s application to purchase a specific number of shares at a particular price during the IPO process. It indicates interest and helps determine the final share price.

Can we place multiple bids in an IPO?

Yes, investors can place multiple bids in a book-built IPO with different prices and quantities to improve their chances of allotment. However, all bids must be within the price band and follow the lot size rules.

What are bids 1, 2, and 3 in IPO?

These refer to multiple bids an investor can place for the same IPO, each with a different price or quantity. This increases the chances of getting allotted shares.

How many bids can I make for an IPO?

Retail investors can typically submit up to three bids per IPO application. Submitting multiple applications with the same PAN is not allowed.

What is IPO bidding time?

The IPO bidding period usually lasts three working days, with the window open from 10 a.m. to 5 p.m. During this period, investors can place, modify, or cancel bids.