What Does IPO Bidding Mean?

IPO bidding is a key term that you need to understand if you are a beginner and want to subscribe to an Initial Public Offering (IPO). IPOs allow investors an opportunity to acquire shares of a firm before it lists on the exchange. Let us understand the IPO bidding meaning, its process, and tips and tricks to bid for an IPO in more detail.

What is IPO Bidding?

You must first understand the IPO bidding meaning before moving forward. IPO bidding is the process of placing bids for shares in an IPO. When a company goes public, investors express interest in purchasing its shares by submitting offers to buy them at a specific price and within a specified range. Each investor must meet a few prerequisites to subscribe and bid in an IPO.

IPO Bidding Procedure

The IPO bidding procedure may seem very short. However, it consists of a lengthy procedure, which is explained below:

1. Price Band

   The IPO bidding process includes two strategies: book building and fixed pricing. In book building, investors bid within the range that the company specifies for the IPO, while investors can only apply at a fixed price.

2. Bidding Procedure

   Investors place bids online or offline after deciding on the number of shares and the amount they want to pay for each share.

3. IPO Allotment

   After the bidding period ends, underwriters use the bids they have received to determine the cut-off price in the IPO allotment procedure. Then, allocation occurs according to allotment criteria such as investor type, bid size, and subscription status.

Investors can check their allocation status once the allotment procedure is over, and IPOs may be oversubscribed or undersubscribed.

Things to Consider Before You Bid for IPO

Before you bid for an IPO, you must know a lot of things, which are:

1. The Red Herring Prospectus

   Companies should submit the Red Herring Prospectus (RHP) to the Securities and Exchange Board of India (SEBI). The RHP includes all of the important details regarding the IPO, the company’s financial accounts, prospects, management details, and more. You may stay up to date on the company’s business goals by reviewing the RHP.

2. Funds Utilisation

   It is crucial to understand the company’s goal behind its IPO launch. It can be to settle current debts and liabilities, grow or extend their operations, or even provide a means for its promoters to sell their shares.

3. Company’s Strengths and Weaknesses

   Every company has distinct strengths and flaws. You must examine them before investing in an IPO. Using the RHP as a guide, perform a SWOT analysis by reviewing reports, news, and potential areas for expansion.

4. Valuation

   Companies may be overvalued if the IPO price exceeds the inherent value of their shares, or undervalued if the IPO price is less than the intrinsic value of their shares.

5. Company Performance Against the Industry

   You should also know how the company competes against its rivals. See if the company’s performance is better, worse, or in line with the industry average. You should use the fundamental ratios. These will assist you in determining whether or not you should participate in the IPO.

How to do IPO Allotment After Bidding?

The registrar, working with stock exchanges, decides allotment once the IPO bidding process is over. Allotment occurs through a lottery mechanism if demand exceeds available shares, allowing for equitable distribution. The pointers below explain the IPO allotment process after bidding:

1. After the IPO bidding period, the registrar verifies the applications.
2. The ultimate issue price is decided by whether the IPO is a fixed price IPO or a book-built IPO.
3. Retail investors receive at least 35% of the overall IPO size, based on the share allocation that is created in cooperation with the relevant exchanges. However, a computerised lottery technique is used to conduct a random draw if the total number of bids is above the number of shares offered.
4. Shares are distributed pro rata if any are left over after the minimum lot allotment.
5. The registrar publishes the basis of allotment, which includes information on the demand for the particular stock.
6. You can check the allotment status on the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE) platform, or the registrar’s website.
7. The blocked amount approved by the ASBA or UPI mandate will be released into your account if you did not receive any money.

Tips and Tricks to Bid for an IPO

Follow the pointers below to maximise your IPO allotment possibilities:

1. Multiple Demat accounts

   Using many Demat accounts while applying is a good method to boost the likelihood of getting an IPO allocation. When filing for the IPO, one may utilise the Demat accounts of family members, including parents, spouses, or siblings.

2. Look for Reserved Quotas

   A percentage of shares is set aside in certain IPOs for the shareholders of the parent or the group company and employees of the company. Applying through these reserved quotas might increase your chances if you fall within these categories, as they often receive fewer applications than the retail category.

3. Stay Clear of Large Applications in the Retail Category

   Since all retail investors have an equal probability of receiving at least one lot in oversubscribed IPOs, it is a common misconception among investors that applying for the maximum number of lots will boost their chances of success.

4. Early Application

   It might be risky to wait until the last day to apply. Rejection may occur due to last-minute problems such as UPI delays, unsuccessful payments, or banking system mistakes. The IPO will handle your application successfully if you apply early.

How Can You Check Your IPO Allotment Status?

Checking the IPO allotment status online can be easy since you can use the registrar’s website or the stock exchange platform. To do so, you will need a PAN number, a depository participant (DP) or a client ID, and an application number.

Follow the steps below to check IPO allotment status:

1. Go to the website of the IPO registrar.
2. Enter the details such as DP/Client ID, application number, or PAN.
3. Send in and check the status of your IPO allotment.

These platforms will inform whether you have received the shares or not based on the allotment process.

Mistakes to Avoid in IPO Bidding Process

1. Lack of Research

   Finding an IPO which is worth investing in is mostly dependent on your research in the IPO bidding process. You must assess the company’s business plan, products, target markets, IPO justification, competition, growth potential, and risk factors.

2. Investment in Listing Gains

   Due to the quick returns on the listing day, many investors go ahead. Even while stock values can increase, there are several instances where they have also decreased in value on the day of listing. For investors, timing and luck are crucial since stock values fluctuate during the listing day in the IPO bidding process.

3. Deciding Based on Subscription Data

   Avoid falling for the subscription hype that frequently arises when news of a marquee investor’s investment emerges. It is difficult to tell if any of them did it, how much they paid for the shares, or even what their intentions were.

Final Thought

The IPO bidding process is one of the most important phases when a company is going public. Investors who understand this procedure can handle expectations and negotiate the complications of share allocation in a better way.

For IPO subscription, you can use the PL Capital Group – Prabhudas Lilladher and explore the latest IPOs. PL allows you to apply for an IPO in just 5 steps.

Frequently Asked Questions

1. What distinguishes IPO allocation from IPO bidding?

IPO bidding is a procedure in which investors seek to purchase shares in an IPO, and the IPO allocation is the distribution of those shares to successful bidders.

2. Is it possible to withdraw from my IPO bid?

If you are a retail investor and you want to withdraw from an IPO offer before the subscription period ends, then you withdraw from your IPO bid. However, depending on the type of investor, individual investors can withdraw, while qualified institutional buyers (QIBs) and high net worth individuals (HNIs) typically cannot.

3. In an IPO, what are bids 1, 2, and 3?

Bid1, Bid2, and Bid3 are the 3 price and quantity combinations that the investor can use to submit bids. The amount should be more than the minimum lot size, and the price should be within the range. The amount of the highest bid will be blocked from the bank account.

4. Does IPO bidding guarantee allocation?

No, allocation is frequently decided by a randomised lottery mechanism. Therefore, IPO bidding does not ensure allocation, particularly when an IPO is oversubscribed.