Introduction

IPO bidding is a good way to invest in a company as it transitions from private to public. It potentially takes some benefit as its share prices come onto the stock markets. IPO bidding might seem complex if you're new to investing or attempting to learn a better investment method. However, knowing how IPO bidding works is essential in making informed decisions. This article explains how IPO bidding works, how you can apply for shares, and key considerations, all described in simple terms for investors.

What is IPO Bidding?

IPO bidding is the process in which you express interest in buying a certain number of shares of a company that is about to launch an IPO on exchanges like NSE or BSE. When you place a bid, it needs to include how many shares you want to buy and the price within the range. This process allows companies and market participants to check demand for the company shares when they formally list on the stock exchange. For Investors, IPO bidding is a way to catch a new company in formal trade with the potential of buying at a lower price for a limited duration before the company shares can be traded freely.

How does IPO Bidding Work?

The IPO bidding experience is a structured process governed by SEBI Guidelines in India. Here's how it works:

1. Price Band and Bidding Options

Companies offer IPOs through two methods: book building, where you bid within a price range (e.g., ₹500–₹550), or fixed price, where you bid at a single price set by the company. You choose the number of share lots (a fixed set, like 20 shares) and your bid price.

2. Placing Your Bid

You can bid online or offline through a broker. You will also require a PAN card, a demat account, a linked trading account, and a bank account with ASBA (Application Supported by Blocked Amount) or UPI. Make sure you have enough cash, as your bid will be blocked when bidding until the allotment of the IPO is finalised.

3. Allotment and Listing of the Security

Once the bidding period has expired (most typically 3 days between 10 am and 5 pm), the company and the registrar will establish the cut-off price, which will be the final price at which shares will be allotted based on the demand of the issue. In the case of oversubscription (typically in the retail category), where shares are allotted via a lottery system, allocation is not guaranteed even if you made your offer at the cut-off price. If the IPO were oversubscribed, the company would go through a lottery process to allot shares to the winners or lucky retail investors like you. After the shares have been allotted, they will be credited to your Demat Account, and after that, the shares will list in six working days.

Steps to Bid in IPOs

1. Setting up: To get started, one will need a demat account, a trading account, and either an ASBA-enabled bank account or a UPI ID.

2. Check out the RHP: The RHP (Red Herring Prospectus) contains information about the company's financials, the purpose of the IPO, and risks.

3. Decide Your Bid: Decide on how many lots to bid for and what price within the band, and then submit your bid to your broker or your UPI app.

4. Monitor Your Bid: The bidding period lasts three days, and you can change or withdraw your bid at any point.

5.  Allotment Status: Once the bid has been closed, you can verify your allotment status on the registrar's website (This check is usually available within three days).

6. Wait for Listing: If you receive an allotment, money is deducted from your account, and the shares are added. If no allotment is received, the cash is unblocked.

Key Considerations

Before you submit your bid, here are some essential points to consider:

Company Fundamentals: It is critical to review the RHP to validate that there are no glaring red flags, including a company's financial wellness, growth strategy, and level of risk. For instance, is this IPO to pay down debt or fund expansion plans?

Valuation: Compare the IPO price to the company's intrinsic value. An IPO may be overvalued, meaning prices plummet when the aftermarket starts trading, and the company loses value.

Market Conditions: Economic trends or market volatility can affect listing performance.

Conclusion

Understanding the bidding process for IPOs can help you make informed choices about your investment journey. Investments in the Indian stock markets are very exciting, but your next investment opportunity can only begin with a decent bid.

Further reads: What happens to your money once you bid for an IPO | How to buy an IPO in India? | How to apply for an IPO?