IPO Bidding Explained: Process, Steps, Types and Tips for Investors

The IPO bidding process is what enables firms to gauge the market interest in their stock and helps set appropriate prices prior to listing on stock markets. The IPO application process requires making bids either online or through stockbrokers or other means, stating the amount of shares and the amount of money you want to invest per share. All aspects relating to IPOs, such as the IPO bidding process, what is IPO bidding all about, various types of investors, mistakes to be avoided and many other useful tips, can be found in this guide.

What is IPO Bidding?

What is IPO bidding? It simply refers to the act of bidding for shares of stock in the Initial Public Offering. In the event that a company opts to become a publicly listed entity, it creates a time frame whereby individuals interested in purchasing the company’s shares will make a bid to acquire them at a certain cost within a specific range.

Investors bidding for the IPO stock have an opportunity to not only secure the stock at an agreeable cost but also ensure proper distribution among themselves. Understanding the IPO application process India follows is essential before placing your first bid.

Table of Contents

1. What is IPO Bidding?
2. How Does IPO Bidding Work?
3. Types of IPO Investors
4. Step-by-Step IPO Bidding Process
5. Things to Know Before Bidding
6. How is IPO Allotment Done After Bidding?
7. Mistakes to Avoid During IPO Bidding
8. Key SEBI Updates Investors Should Know

How Does IPO Bidding Work?

The IPO bidding process operates through two primary pricing methods:

In book building, investors specify the number of shares and the price within the announced price band. Once the bidding period closes, underwriters determine the cut-off price based on aggregated demand. Only bids placed at or above the cut-off price are eligible for allotment. In oversubscribed IPOs, allotment for retail investors is done through a computerised lottery system to ensure fairness.

Also Read: How to Apply for an IPO Online

Types of IPO Investors

The IPO application process India follows divides participants into distinct categories:

Step-by-Step IPO Bidding Process

Here is how to bid for IPO correctly from start to finish:

Step 1: Account Setup
Ensure you have a valid PAN card, a Demat account with a registered Depository Participant, a linked trading account, and a bank account enabled with ASBA.

Step 2: Analyse the IPO Details
Read the Red Herring Prospectus carefully. It contains the company’s financials, price band, lot size, risk factors, and intended use of proceeds.

Step 3: Choose Your Application Method
Apply through Net banking via ASBA or a UPI mandate. The bid amount is blocked rather than debited and is only deducted upon allotment.

Step 4: Place Your Bid
Select the number of lots and your bid price within the price band. Retail investors can also bid at the cut-off price.

Step 5: Track Your Bid Status
The subscription period is open for three working days, with the bidding window active from 10 a.m. to 5 p.m. On the closing date, bids must be submitted by 3 p.m., though uploads to the exchange are accepted until 5 p.m. for retail and QIB investors. You can modify or cancel your bid during this window.

Step 6: IPO Allotment
Allotment is typically finalised within three working days from the IPO closing date. Check status on the registrar’s website or the NSE and BSE platforms.

Step 7: Fund Deduction or Release
If allotted, the blocked amount is deducted and shares are credited to your Demat account. If not allotted, the blocked amount is automatically released.

Step 8: Listing
Under the mandatory SEBI T+3 scheme that started on December 1, 2023, the assigned shares are listed on the appropriate stock exchange within three working days following the completion of the IPO.

Things to Know Before Bidding

• Review the RHP: The Red Herring Prospectus contains all material information about the company. Reading it is mandatory before participating in the IPO bidding process.
• Understand the Purpose of IPO: An initial public offering is usually meant for raising funds, repaying debts, or providing exits for promoters. This doesn’t necessarily imply that all reasons are favorable to you as an investor.
• Evaluate Valuation: Compare the offer price to the intrinsic value through indicators such as P/E ratio, earnings per share, and ROE. Overvalued stock could experience corrections once listed.
• Compare With Peers: Assess the company against competitors using financial metrics. This is a key step in the IPO application process India that many retail investors skip.
• Conduct a SWOT Analysis: List down your strengths, weaknesses, opportunities, and threats according to RHPs, analyst recommendations, and latest news about the business.

How is IPO Allotment Done After Bidding?

Once the IPO bidding process closes, the registrar determines allotment in coordination with stock exchanges:

• Applications are verified and the final issue price is determined based on IPO type.
• For retail investors, a minimum of 35% of the total IPO size is reserved.
• If total bids exceed available shares, a computerised lottery ensures fair distribution.
• Remaining shares after minimum lot allotment are distributed on a pro rata basis.
• Allotment status is published on the registrar’s website and the NSE and BSE platforms.
• Unallotted amounts blocked through ASBA or UPI mandates are automatically released.

Mistakes to Avoid During IPO Bidding

• Chasing Listing Day Gains: Not every IPO lists at a premium. Listing day prices are driven by sentiment, not fundamentals. Treat every IPO as an investment, not a trade.
• Skipping Research: Analyze the business model, finances, management, and risks associated with the IPO before participating in the IPO process. Ignoring the RHP’s risk section is one of the costliest mistakes in IPO bidding.
• Following Subscription Hype: Heavy institutional subscription generates buzz but tells you little about exit intentions or the price paid. Base your decision on fundamentals, not noise.
• Misreading the Grey Market: Grey Market Premium can indicate sentiment but is unregulated and susceptible to manipulation. Use it as one reference point only, never as a primary signal.

Key SEBI Updates Investors Should Know

• T+3 Listing Process: The most significant amendment made. From December 2023 onwards, all mainboard initial public offerings are listed within three days after the closure of the offer period, allowing quick allotments, swift refund of money, and early trading.
• Lock-in Period for Anchor Investors: This amendment ensures that there are no large institutional exits post-listing, minimizing any volatility risks for retail investors.
• April 2026 Reliefs: SEBI offered relief to companies by allowing modifications in the IPO issue amount to 50% of its actual amount without filing the DRHP again and extending the validity of the observation letters till September 30, 2026.

Conclusion

IPO bidding is not just about pressing ‘apply’ in your stockbroker’s application. This process involves hard work and requires knowledge, research, and realistic thinking. Knowing  what is IPO bidding, being familiar with the IPO bidding process stage by stage, knowing the investor group you belong to, and keeping yourself aware of the latest rules of SEBI are some of the things you need to do when engaging in IPOs smartly. The IPO application process India is very organized and is fast with its T+3 approach. Each IPO bid should be considered individually for what it is worth.