IPO Bidding: Everything You Need to Know (Simple Guide for Beginners)

If you’ve ever watched news clips about a company going public and thought to yourself, “Can I buy those shares?”, then you already understand the concept of an IPO. IPO is actually the acronym for Initial Public Offering. IPO bidding is the procedure whereby you seek to acquire company shares when the company first lists on the stock market. Here’s a step-by-step guide to IPO bidding explained in simple English.

What is IPO Bidding?

IPO bidding represents an investment bid made by those wishing to purchase shares in a company making its initial public offering. It entails making an offer to purchase a particular quantity of shares at a particular price. The shares will be allocated based on the offers made, determined by the firm and its underwriters.

Just like in a silent auction where many people are vying for the same item (stocks), the company uses the bids to determine a fair price that is later sold on the stock market.

How Does IPO Bidding Work?

IPO bidding in India follows a structured process. Here’s how it generally works:

1. Price Band & Bidding Method
   • In a book-built IPO, the company sets a price band (for example, ₹100–₹120 per share). You can bid at any price within this range.
   • In a fixed-price IPO, the company sets one fixed price (for example, ₹110 per share), and all investors apply at that price.
2. Placing Your Bid
   You apply through your broker or online platform, choosing:
   • How many lots (minimum units) you want to buy.
   • The price per share (within the price band, if it’s a book-built IPO).
3. Allotment of Shares
   After the bidding window closes:
   • The underwriters and company decide the final issue price (cut-off price).
   • Shares are allotted based on the bids received, investor category, and subscription level.
   • If demand is very high (oversubscribed), allotment may be done through a lottery system for retail investors.

Types of IPO Investors

Not all investors are treated the same in an IPO. SEBI (the market regulator) divides investors into categories:

• Retail Individual Investors (RII)
  • You can invest up to ₹2 lakh in the IPO.
  • At least 35% of the total shares are reserved for retail investors.
  • If the IPO is oversubscribed, allotment is done through a lottery; not everyone gets shares.
• Non-Institutional Investors (NII) / High Net-Worth Individuals (HNI)
  • Investors who apply for more than ₹2 lakh.
  • About 15% of the IPO is usually reserved for this category.
• Qualified Institutional Buyers (QIBs)
  • Big institutions like mutual funds, banks, insurance companies, and public financial institutions.
  • Around 50% of the IPO is reserved for QIBs.
  • They play a key role in pricing and are often called “anchor investors.”
• Anchor Investors
  • Large institutional investors who commit to buying a big chunk of shares before the IPO opens to the public.
  • Their participation boosts confidence and helps in price discovery.

Step-by-Step IPO Bidding Process

Here’s a simple, step-by-step guide to bidding in an IPO:

1. Set Up Your Accounts
   • Make sure you have:
     • PAN card
     • Demat account (with a Depository Participant)
     • Trading account linked to your Demat
     • Bank account with ASBA (or UPI mandate) enabled
2. Read the IPO Details (Red Herring Prospectus – RHP)
   • The RHP is a detailed document that tells you everything about the company: its business, financials, promoters, risks, and how it plans to use the IPO money.
   • Always read this before applying.
3. Choose How to Apply
   • You can apply through:
     • Netbanking (using ASBA)
     • UPI mandate (through your broker’s app)
   • Make sure you have enough money in your bank account.
4. Place Your Bid
   • Decide how many lots you want to apply for.
   • Choose the price (within the price band, if it’s a book-built IPO).
   • Submit your application.
5. Check Bid Status
   • The IPO bidding window is usually open for 3 working days (10 a.m. to 5 p.m.).
   • During this time, you can modify or cancel your bid if needed.
6. Wait for Allotment
   • Allotment is usually finalised within 3 working days after the IPO closes.
   • You can check your allotment status on the registrar’s website or on NSE/BSE.
7. Funds and Shares
   • If you get shares, the blocked amount is deducted from your bank account, and shares are credited to your Demat account.
   • If you don’t get any shares, the blocked amount is automatically released.
8. Listing on Stock Exchange
   • The shares are listed on the stock exchange (NSE/BSE) within about 6 working days after the IPO closes.
   • After listing, you can buy, sell, or hold the shares like any other stock.

Things to Know Before Bidding in an IPO

Before you jump into an IPO, keep these points in mind:

• Read the RHP (Red Herring Prospectus)
  This document has all the important details: company profile, financials, risks, and how the IPO money will be used. Don’t skip it.
• Understand the Use of Funds
  Why is the company raising money? Is it for growth, paying off debt, or for promoters to sell their shares? Not every reason is equally good for investors.
• Check the Company’s Strengths and Weaknesses
  Look at the company’s business model, competition, and future growth plans. A simple SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) can help.
• Evaluate the Valuation
  Is the IPO price fair? Compare the company’s valuation with similar companies in the same industry. An overvalued IPO may fall after listing, while an undervalued one may have growth potential.
• Compare with Industry Peers
  Check how the company performs compared to its competitors using simple ratios like:
  • Debt-to-Equity Ratio
  • Price-to-Earnings (P/E) Ratio
  • Earnings Per Share (EPS)
  • Profit Margins and Return on Equity (ROE)

How is IPO Allotment Done After Bidding?

After the IPO closes, here’s how allotment works:

1. Subscription Period Closes
   The bidding window shuts, and the registrar verifies all applications.
2. Demand Assessment
   The final issue price is decided based on the bids received (in book-built IPOs).
3. Basis of Allotment
   • Retail investors get at least 35% of the total shares.
   • If demand is higher than supply, allotment is done through a computerised lottery system.
   • Any remaining shares are allocated on a pro-rata basis.
4. Publish Basis of Allotment
   The registrar publishes the basis of allotment, showing how many shares were applied for and how many were allotted.
5. Check Your Allotment Status
   You can check whether you got shares on the registrar’s website or on NSE/BSE.
6. Funds Released if No Allotment
   If you didn’t get any shares, the blocked amount is automatically released back to your bank account.

Common Mistakes to Avoid in IPO Bidding

Many investors lose money in IPOs not because the IPO is bad, but because they make avoidable mistakes. Here are a few to watch out for:

• Investing Only for Listing Gains
  Many people apply in an IPO hoping to sell on the first day and make quick profits. While some IPOs do well on listing, many fall. Don’t treat IPOs as a lottery; invest only if you believe in the company.
• Not Doing Enough Research
  Don’t apply just because a friend or influencer is talking about it. Read the RHP, understand the business, and check the financials before applying.
• Relying Too Much on Subscription Data
  Just because an IPO is heavily subscribed doesn’t mean it’s a good investment. High demand can be driven by hype, not fundamentals.
• Trusting Grey Market Prices Blindly
  The grey market is an unofficial market where unlisted shares are traded. It can give an idea of listing expectations, but it’s unregulated and can be manipulated. Use it only as a rough guide, not as the main reason to invest.

Final Thoughts

IPO Bidding is a good way to be among the initial shareholders of the company, but it’s rather not only dependent upon luck. It is possible to make well-informed decisions after reading the RHP, analyzing the value of the company, and realizing what mistakes to avoid.

If you’re new, you could play the IPO market with smaller investments and learn something with each IPO. It is always a game of making a quick profit. With the proper know-how and the right attitude, IPO bidding can prove helpful for you when investing.

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