What is book building in an IPO?
Book building is the way most IPOs in India are priced. Instead of the company naming one price, it gives a range and lets the bids decide where in the range the price lands.
Quick answer
In a book-built IPO the company sets a price band, investors bid within it, and the bids collected form the 'book'. After bidding closes, the company and its lead managers fix the final issue price from the demand shown by that book. In a fixed-price issue the price is named in advance and there is no band.
How it works, step by step
First the price band is announced, a few days before the issue opens. The cap price can be at most 20% above the floor. Anchor investors bid a day before the public issue.
Then bidding runs for about three working days. Every bid, with its quantity and price, is added to the book. Retail bids at the cut-off price accept whatever is fixed.
When bidding closes, the demand at each price is read from the book and the issue price is fixed, most often at the top of the band when demand is strong. Allotment follows at that price.
Why it matters to you
If you bid at the cut-off price you are not guessing the price, and any difference between what was blocked and the final price is released. If you name a price below the final price, your bid is not considered.
The size of the book, how many times it is covered, is the subscription figure you see on IPO Khata for each category.
Book building vs fixed price
Fixed-price issues are now uncommon on the mainboard and mostly seen with small issues. They have one price, so there is no price discovery, while book building lets the market set it.
Related guides
- IPO lot size, price band and cut-off price explained
- What the cut-off price means in an IPO
- What is IPO subscription (times subscribed)?
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
- DRHP, RHP and prospectus: what to read before an IPO
- The shareholder quota in an IPO
- IPO lock-in periods explained
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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.