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
- IPO lot size, price band and cut-off price explained
- What is book building in an IPO?
- DRHP, RHP and prospectus: what to read before an IPO
More on how ipos work
- SME IPO vs mainboard IPO: what is different
- IPO categories explained: retail, HNI (NII) and QIB
- Anchor investors in an IPO
- The shareholder quota in an IPO
- IPO lock-in periods explained
- The employee quota in an IPO
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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.