In the old days of the stock market, when a company wanted to go public, it would pick a fixed price (say ₹100) and ask people to buy shares. This was a Fixed Price IPO. But as the market grew, companies realized that guessing a price was risky if they set it too high, nobody bought; if too low, they lost out on money. To fix this, a smarter method was born: Book Building.

In 2026, almost every major IPO in India uses the Book Building method. It is essentially a price discovery mechanism. Instead of the company telling you the price, the company asks the market, how much are you willing to pay? This ensures the final price is fair, transparent, and based on real demand. For you as an investor, understanding this process is the key to placing a successful bid.

Stages of the Book Building Process

The journey of a book-built IPO involves a series of highly regulated steps. Here is how it moves from a plan to a listing:

1. Appointing the Book Runners

The company hires investment banks, known as Book Running Lead Managers (BRLMs). Their job is to manage the entire process, talk to big investors, and help the company decide the price range.

2. Setting the Price Band

The company doesn't fix a price; it sets a Price Band (for example, ₹475 to ₹500).

Floor Price: The lower limit (₹475).
Cap Price: The upper limit (₹500). In 2026, the Cap Price cannot be more than 20% higher than the Floor Price.

3. Building the Book

The IPO opens for 3 to 5 days. During this time, investors (Retail, HNI, and Big Institutions) place their bids. They specify how many shares they want and what price they are willing to pay within the band. These bids are recorded in an electronic Book.

4. Analyzing the Demand

As the bidding continues, the BRLMs monitor the demand. They can see exactly how many people want the shares at ₹475, how many at ₹490, and how many at ₹500. This is the real-time heartbeat of the IPO.

5. Discovering the Cut-off Price

Once the window closes, the BRLMs look at the total bids. The Cut-off Price is the price at which the maximum number of shares can be sold to fully subscribe the IPO. This becomes the Final Issue Price.

6. Final Allotment

Everyone who bid at or above the Cut-off Price is eligible for the lottery. If you bid below the final price, your application is rejected and your money is unblocked.

7. Listing on the Exchange

With the price now discovered by the public, the company officially lists on the NSE and BSE.

Comparison: Book Building vs. Fixed Price

Feature

Book Building Method

Fixed Price Method

Price

Determined through investor bidding.

Fixed by the company in advance.

Transparency

High (Demand is visible real-time).

Low (Demand only known at the end).

Mechanism

Market-driven price discovery.

Guesswork based on financials.

Popularity

Used by 95% of Mainboard IPOs.

Mostly used by smaller SME IPOs.

Key Terms You Must Know

Cut-off Price: This is the final price decided after the bidding ends. If you are a retail investor, you can simply tick the Cut-off box on your form. This means you agree to pay whatever the final price ends up being, ensuring you aren't rejected for bidding too low.
Subscription Status: This tells you how many times the IPO has been overbooked. For example, 10x subscription means for every 1 share available, there are 10 people wanting to buy it.
Price Discovery: This is the whole point of book building. It’s the process of finding out the true market value of a company based on what investors are actually ready to pay.

Frequently Asked Questions (FAQs)

Why is it called Building a Book?

Because the lead managers literally compile a book of every investor's bid including the name of the investor, the number of shares, and the price they offered.

Is the Cut-off Price always the highest price (Cap Price)?

Not always, but in a hot or oversubscribed IPO, the demand is so high that the Cut-off Price almost always ends up being the Cap Price (the highest point of the band).

Can I change my bid once the book is open?

Yes! In 2026, you can Revise or Modify your bid as many times as you want until the IPO closes on the final day.

What happens if I bid ₹480 but the Cut-off is ₹490?

Your application will be rejected because you were not willing to pay the final discovered price. You will receive a full refund (unblock) of your money.

What if I bid ₹500 and the Cut-off is ₹490?

You will be allotted shares at ₹490 (if you win the lottery), and the extra ₹10 per share will be refunded to your bank account.

Does the Cut-off option work for HNIs?

No. In 2026, only Retail Investors can choose the Cut-off option. HNI investors must specify an exact price for their bids.

Who are Anchor Investors in book building?

These are big institutions (like Mutual Funds) that anchor the IPO by buying shares a day before it opens for the public. They help set the mood for the book building.

Can a company change its Price Band?

Yes. If the demand is very poor, a company can lower its price band and extend the IPO by a few days to attract more buyers.

How do I know the real-time demand?

You can check the Live Subscription Status on the NSE or BSE websites, or directly on your broker app like Motilal Oswal RIISE.

Is book building better for investors?

Yes, because it prevents the company from overpricing its shares. If a company tries to ask for too much, investors simply won't bid, and the company will be forced to lower the price.

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