How an IPO's price band is decided

The price band is the range, say ₹95 to ₹100, within which you may bid. Choosing it is one of the most scrutinised decisions in an IPO.

Who decides

The company and its lead managers decide the band, usually in the last week before the issue opens, after meeting institutional investors. The band is announced in a newspaper advertisement and on the exchanges, and the offer document sets out the basis on which the price was arrived at.

The rules on the band

The upper price (cap) cannot be more than 120% of the lower price (floor), so the band is at most 20% wide. If the band is revised during the issue, bidding is extended for at least three working days.

How to read it

The basis for the issue price in the offer document compares the company's earnings, book value and ratios with listed peers. Look at the valuation, the proportion of fresh issue to offer for sale, and the objects of the issue, rather than the price per share, which says nothing about value.

The amount you must have available is the upper price multiplied by the lot size. IPO Khata shows that, plus the retail maximum and where HNI starts, on each IPO's lot size page.

The final price

The issue price is fixed within the band after bidding. In heavily subscribed IPOs it is almost always the cap, which is why blocking the amount at the upper price rarely leaves a difference.

Related guides

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Information, not investment advice. GMP is an unofficial grey-market indicator; figures come from public sources (InvestorGain) and may be late or wrong. Not registered with or affiliated to SEBI, the exchanges, the registrars or InvestorGain.