An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuers securities. The sale of securities can be either through book building or through normal public issue.

IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.

Basic Understanding on IPO

1) What is Book Building?

SEBI Guidelines defines Book Building as a process undertaken by which a demand for the securities proposed to be issued by a corporate body is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document.

2) What is the main difference between offer of shares through book building and offer of shares through normal public issue?

Price at which securities will be allotted is not known in case of offer of shares through book building while in case of offer of shares through normal public issue, price is known in advance to investor. In case of Book Building, the demand can be known everyday as the book is built. But in case of the public issue the demand is known at the close of the issue.

3) What is minimum number of days for which bid should remain open in book building?

Book should remain open for minimum of 3 working days.

4) What is the floor price in case of book building?

Floor price is the minimum price at which bids can be made.

5) Can the Individual Investor use book building facility for making an application?

Yes.

6) Can the bidder revise his bids?

Yes.

7) Which members will be allowed to participate in book building of issue?

Book Running Lead Manager appointed by the issuer will intimate to the exchange the list of members who are eligible to participate in the issue. These members will be allowed to enter the bids in the IPO.

8) Is it possible to enter bids less than floor price?

No. The system automatically rejects the bids if price is less than floor price.

9) How is the Retail Investor defined as?

Retail individual investor means an investor who applies or bids for securities of or for a value of not more than Rs.1,00,000.

10) Can a retail investor also bid in a book-built issue?

Yes. He can bid in a book-built issue for a value not more than Rs.1,00,000. Any bid made in excess of this will be considered in the HNI category.

11) Is it compulsory to have a Demat Account?

As per the requirement, all the public issues of size in excess of Rs.10 crore, are to made compulsorily in the demat mode. Thus, if an investor chooses to apply for an issue that is being made in a compulsory demat mode, he has to have a demat account and has the responsibility to put the correct DP ID and Client ID details in the bid/application forms.

12) Is it possible to know the number of shares that would be allotted?

In case of fixed price issues, the investor is intimated about the CAN/Refund order within 30 days of the closure of the issue. In case of book built issues, the basis of allotment is finalized by the Book Running lead Managers within 2 weeks from the date of closure of the issue. The registrar then ensures that the demat credit or refund as applicable is completed within 15 days of the closure of the issue. The listing on the stock exchanges is done within 7 days from the finalization of the issue.