IPO Bidding: Everything You Need to Know

IPO bidding (Initial Public Offering) is the process where investors submit requests to buy shares of a company before it goes public. The investors specify the number of shares and the price they’re willing to pay for it. It sounds simple on the surface, but this is actually the moment when the company begins to gauge how the market perceives it. Investors use this phase to enter a business just before it becomes public, while companies and bankers use it to assess demand and arrive at the final offer price.

Because the entire subscription outcome depends on how people bid during this short window, this period is quite essential. Different kinds of investors participate, including retail investors, institutional investors (QIBs – Qualified Institutional Buyers), non-institutional investors (NIIs), and high-net-worth individuals (HNIs). The mix of their bids provides an early sense of the sentiment around the issue. In that way, IPO bidding is not just a procedural step. It’s the first genuine exchange of signals between the company and the market.

Now, let us understand in detail the key aspects of the IPO bidding process.

What Is A Bid In An IPO?

To understand what is bid in an IPO, imagine an investor filling out a simple form that states, “I want this many shares, and here’s the price I’m okay with.” That’s essentially what placing a bid means. Since IPOs operate within a specific price band, investors choose a price within that range. To maximise share allotment chances, retail investors often opt for the cut-off option, which signals their willingness to pay the final issue price within the declared price band, whatever it turns out to be.

Other investors, such as institutions and High Networth Individuals (HNIs), may select a specific price based on their assessment of the company’s valuation. Either way, placing a bid puts the investor into the allotment pool.

So, when people ask what IPO bidding is, the answer is: it is simply the market’s way of telling the company who wants in and at what price. The pace of bidding, the price levels at which interest gathers, and how quickly each category fills up — all these small details reveal how the IPO might shape up once the offer closes.

How Does IPO Bidding Work?

The entire process begins when an investor opens their broker's app, finds the IPO, and selects the number of shares they want to purchase. A lot is the smallest bundle of shares they’re allowed to apply for. After that, they enter the price they prefer or choose a cut-off point if they want the final price without having to make an estimate.

Then comes payment through Application Supported by Blocked Amount (ASBA), which only blocks the amount in the investor’s bank account. Nothing is actually deducted unless shares are allotted. During the bidding phase, investors can revise or cancel their bids as long as the window remains open.

As the days progress, you slowly start seeing how the market is reacting. Institutions and non-retail investors usually place bids early, while retail investors often join closer to the end of the IPO period. Subscription numbers rise, sometimes unevenly, and everyone gets a sense of whether the IPO is gaining momentum or dragging.

Once bidding ends, everything gets frozen. No more changes, and the company finally gets a clear picture of demand. All the bids placed at different price levels come together to help determine the final issue price. If demand is strong, the price may settle near the upper band; if demand is weak, it could fall closer to the lower band.

Key Rules And Components Of IPO Bidding

IPO bidding operates within a few set boundaries. First is the price band. Nobody can bid above or below it, so all bids fall inside that range. Next is the lot size — the smallest bundle of shares you can request. Retail and institutional bidders often have different lot requirements.

There is also the minimum application amount. Retail bidders have a cap in terms of how much they can apply for, while other investor categories, such as QIBs and NIIs, generally have higher limits or no strict cap. The ASBA system is another key rule. It protects investors by keeping the money in their own bank account until allotment happens.

Different investor categories also have their own bidding norms. Retail investors can select cut-off pricing; institutional investors cannot. Certain categories may receive reservation or priority depending on how the IPO is structured. All these pieces together shape the system that governs what is IPO bidding and how it flows.

What Happens After The Bidding Closes?

When the bidding window finally closes, investors can no longer make any adjustments. At that point, the company and its underwriters dig through the numbers to see how people actually responded. They examine which prices generated the most interest and how each group of investors responded to them. And if many of the bids sit near the upper end of the band, buyers are comfortable with the valuation.

Next comes the stage where the final issue price gets decided. That is based on the overall demand. Once that is set, allotment begins. Retail bidders may face a lottery if the IPO gets oversubscribed, or allotment may happen on a proportional basis. Other investor categories usually follow different allotment rules depending on demand.

After this, investors either receive shares in their demat accounts or get their blocked funds released. Once everything else is wrapped up, the company shifts its focus to listing day, when the stock is finally listed on the exchange and begins trading in the open market for the first time.

Advantages And Risks Of Participating In IPO Bidding

Here are the key advantages and risks to look for before participating in IPO bidding:

• Opportunity to Invest at an Early Stage

IPO bidding allows people to enter a company as it steps into the public market, which many long-term investors prefer.

• Possibly Favourable Pricing

The final IPO price is decided after looking at all the bids from retail, institutional, and high-net-worth investors. Sometimes the issue price ends up lower than the price the stock starts trading at, giving early investors a little edge.

• Potential for Listing Gains

There are times when a stock opens above its initial offering price on the first day, giving early bidders a slight advantage immediately. It does not happen every time, but it can occur occasionally.

• Oversubscription Risk

If an IPO is oversubscribed, retail investors may be allotted fewer lots than they applied for, or in some cases, they may not receive any allotment at all.

• Price Volatility Post-Listing

Even if a stock lists well, that does not mean it will stay steady. Prices can fluctuate significantly as the market determines where it believes the stock should ultimately settle.

• Non-Allotment / Funds Blocked

If you do not receive shares, your blocked funds will be returned; however, you will still need to wait until the allotment is complete.

• Bidding at the Wrong Price

Mainly affects non-retail bidders. If they bid too low and the final price is higher, they miss out altogether.

What Investors Should Keep In Mind Before Bidding

Before placing a bid, it helps to check how similar companies are valued; sometimes that alone tells you if the IPO feels pricey. And if the number looks stretched, well, that’s a reason to pause. People often glance at subscription figures, too, which can give some insight, but those numbers cannot replace your own judgement. At the end of the day, bidding works best when you treat it like a real decision and not something you jump into on impulse.

Even just reading the key sections of the prospectus can give a clearer picture of what the company does and where the risks actually lie. It’s better to enter with your eyes open than follow the crowd without context.

Conclusion

IPO bidding is the stage where both investors and the company get their first real sense of each other. Investors show interest through bids, and the company uses that information to gauge demand and decide the final price. When you understand how bidding works, including the steps, the rules, the risks, and the small opportunities tucked inside, the IPO process becomes much clearer. Ultimately, it serves as a structured way for the market and the company to meet before trading begins.

Sources:

Kotak Securities
SEBI
Investopedia