Bid in IPO

In the context of stock markets and IPOs (Initial Public Offerings), bidding is a fundamental process where investors express their interest in buying shares at a particular price. Bidding helps determine the offer price and final allocation of shares, making it a critical aspect for investors and companies alike. This guide covers what a bid is in an IPO, how the bidding process works, and tips on placing a successful IPO bid.

What is a Bid in IPOs?

In IPOs, a bid represents an investor’s offer to purchase shares at a specified price within a set range. It reflects both the investor’s interest and the price they are willing to pay for a particular stock. The bidding process enables the issuer to gauge demand and helps set a fair offer price before listing on the exchange. The bid price can fluctuate based on market demand and the type of IPO (fixed price or book-building).

Types of Bids in IPOs

There are two primary types of bids associated with IPOs:

Fixed Price Bid:

In this type, investors place bids at a predetermined price set by the issuing company. The bid price and offer price are fixed and publicly disclosed before the IPO opens for subscription.

Book-Building Bid:

This method allows investors to place bids within a specified price range, known as the price band. Investors determine the final offer price based on demand, and the system allocates shares based on the bids they place within the range. This bidding system is commonly used in India’s IPO market because it provides flexibility to both investors and issuers.

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Key Terms Related to Bidding in IPOs

To better understand the bidding process in IPOs, let’s explore some essential terms:

• Bid Price: The price at which an investor is willing to buy shares during an IPO.
• Offer Price: The final price at which shares are allocated to investors.
• Bid Lot: The minimum number of shares that an investor must bid for in a single application.
• Cut-off Price: In book-building IPOs, retail investors can select the cut-off price, indicating their willingness to buy shares at the final determined price.
• Bid Application: The form submitted by investors to participate in an IPO. This form includes details like the bid price, quantity, and investor category.

How the IPO Bidding Process Works

Announcement of IPO Price Band and Lot Size:

Before the IPO opens, the company and underwriters announce the price band (minimum and maximum price) and the lot size. This information helps investors decide on their bid price and quantity.

Submission of Bids by Investors:

Investors submit their bids through an online or offline bid application form. The form requires details like bid price, quantity, and DP ID (for Demat account).

ASBA (Application Supported by Blocked Amount):

In India, investors follow the ASBA process for IPO bidding, where the system blocks the bid amount in the investor’s bank account instead of debiting it. If the bids succeeds, the system deducts the amount; if it fails, the amount remains in the account.

Finalization of Offer Price:

After the bidding period closes, the company reviews the bids to determine demand at various price levels. For book-building IPOs, this process results in a price within the price band. The final offer price is then published.

Allotment of Shares:

Based on the demand and bid prices, shares are allotted to investors. Retail investors can check the IPO bids status and allotment results on the registrar’s website.

Listing on Exchange:

After finalizing the allotment, the company lists the shares on the exchange, where investors can buy or sell them on the open market.

IPO Bid Price vs. Offer Price

The investor offers the bids price per share during the IPO, while the issuing company sets the offer price based on demand. In fixed-price IPOs, the bids price and offer price are the same, as there is no bidding range. In book-building IPOs, the offer price falls within the pre-decided price band and reflects the highest bids price determined during the bidding process.

How to Place a Bid for an IPO

Investors can place a bid for an IPO through various channels:

1. Online Trading Platform:
   Most stockbrokers provide an IPO section on their trading platforms. Investors can log in, select the IPO, enter bid details, and submit the application.
2. Bank ASBA Facility:
   Many banks offer ASBA-enabled accounts for IPO bidding. Investors can log into their online banking, navigate to the IPO section, select the IPO, and complete the application.
3. Offline Application:
   Investors can also apply through offline ASBA forms by visiting their bank branch and filling out the bid application form manually.

Highest Bid Price and Book-Building Method

In the book-building method, investors place bids at different prices within the price band. The highest bid price refers to the maximum price investors are willing to pay and is often used as a benchmark for setting the final offer price. This price may be close to the upper limit of the price band if demand is high.

The book-building process allows for greater flexibility, as it lets the issuer adjust the offer price based on actual demand. It’s common for institutional investors to place higher bids than retail investors, as they often apply for larger quantities.

Tracking IPO Bid Status

After submitting a bid, investors may want to check their IPO bid status to confirm that their application was accepted. Here’s how to do it:

1. Check IPO Bid Status on BSE and NSE: Investors can visit the BSE or NSE websites to view their bids status. The websites allow investors to enter details like their application number or PAN and check whether their bids was successfully submitted.
2. Registrar’s Website: IPO registrars like Link Intime and KFin Technologies handle allotment and publish bid status information. Investors can check their bid status on the registrar’s website by entering their PAN or application number.
3. Broker Platforms: Many brokers offer real-time bids status updates on their platforms. Investors can log into their trading accounts to check the status of their IPO bids.

Important Aspects of IPO Bidding for Investors

• Bid Price Range: Investors must carefully select a price within the price band. Bidding at the cut-off price increases the chances of receiving an allotment for retail investors.
• ASBA Blocked Amount: Ensure sufficient funds are available in the bank account linked to ASBA. This amount will be blocked and only deducted if shares are allotted.
• Bidding in Multiple Accounts: Retail investors can increase allotment chances by applying through different accounts, though multiple applications from the same PAN are not allowed.

Conclusion

The IPO bidding process plays a crucial role in determining the offer price and demand for shares. By understanding key aspects like bid price, offer price, and ASBA, investors can make informed decisions and increase their chances of a successful IPO application. Whether bidding through a bank ASBA or an online trading platform, careful attention to the price band, bids quantity, and submission guidelines ensures a smooth IPO investment experience.