When an organisation wants to get listed on the stock market for the first time, it usually does so through a process called an Initial Public Offering (IPO). The initial public offering domain in India is diverse, providing different options for companies to obtain funding and for investors to be part of the success of new enterprises.
Understanding the various kinds of initial public offerings is essential for investors and businesses alike. Let us explore the various IPO types and their relevance in the Indian market.
Types of IPO
A company that chooses to enter the public sphere has two options for how it wishes to make its shares available to investors. These selections represent the different types of IPOs available in the Indian market.
1. Fixed price issue
A fixed price issue is a basic strategy in which the firm establishes a defined price for its shares before making them available to the market. The price remains stable during the IPO process. To determine this set price, the company works with financial specialists such as merchant bankers and underwriters.
Fixed-price offerings have long been a popular way for Indian businesses to raise capital. Investors value this sort of IPO because of its transparency. They know exactly how much they will pay for each share, which might be reassuring for people who value predictability in their investments.
2. Book building issue:
The book-building issue provides a more dynamic method of calculating share prices. Here, the company specifies a price range or band within which investors can bid on shares. This range is made up of a lower limit called the 'floor price' and a higher limit called the 'cap price.'
During the bidding process, investors place bids in this range, indicating the amount they want to buy and the price they are prepared to pay. This strategy enables an organisation to measure investor interest and base the final share price on the demand received.
Book-building issues are becoming increasingly popular in India owing to their adaptability and capacity to represent the demands of the market appropriately. It gives investors the option to influence the ultimate price based on their willingness to pay.
Differences between fixed price and book-building issues
Understanding the differences between fixed pricing and book-building issues is critical for investors looking to navigate the IPO scenario in India. Let us explore the specifics of each.
Criteria |
Fixed Pricing Issue |
Book-Building Issue |
Pricing |
Set at a fixed price before the IPO |
A price range is provided for bidding |
Demand |
Demand determined after the subscription period ends |
Demand monitored daily during the bidding process |
Payment |
Full payment required at the time of application |
Partial payment required upfront, balance after allotment |
Reservations |
Around 50% reserved for retail investors |
Shares distributed among QIBs, NIIs, and retail investors |
Applying for IPOs
Here is the step-by-step process of applying for IPOs in India:
- Prepare your accounts: Make sure you have a Demat account, a trading account, and a bank account prepared for IPO transactions.
- Brokerage account login: Login to your brokerage account and go to the IPO section to look at available offerings.
- Select the desired IPO: Select the IPO you want to apply for and enter your bid data, such as lot size and price.
- Place your bid: For book-building issues, make your offer within the indicated price range. In fixed-price issues, confirm your bid at the specified price.
- Payment: In book-building issues, the bid amount is deducted beforehand, but in fixed-price issues, payment is made after allocation.
- ASBA facility: You can also apply for an IPO using a bank's Application Supported by Blocked Amount (ASBA) feature.
- Conclusion of IPO: The IPO concludes with share allotment and subsequent listing on stock markets.
Conclusion
IPOs serve an important role in India's financial ecosystem, allowing firms to obtain funds and investors to participate in their success stories. Understanding the details of fixed price and book-building issues allows investors to make informed decisions that are consistent with their financial objectives.
