Book building process in an IPO
A price band, a book of bids, and a final price set from it: how most Indian IPOs are priced.
Book building is the way most Indian IPOs discover their price. Instead of fixing one price in advance, the company announces a price band, investors bid within it for a number of shares, and the final price is set from that record of bids, the book.
The alternative is a fixed price issue, where the price is stated upfront and investors only decide how many shares to apply for. Both routes are governed by the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, and both are run by a SEBI-registered merchant banker acting as lead manager.
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The IPO process in India, start to finish
- 1
1. Check eligibility
Under Regulation 6(1), the company needs net tangible assets of at least ₹3 crore, an average operating profit of at least ₹15 crore over the preceding three years, and a net worth of at least ₹1 crore in each of them. A company that misses these can still list under Regulation 6(2), but only through book building with at least 75% of the net offer allotted to qualified institutional buyers (QIBs).
- 2
2. File the draft offer document
The company files the draft offer document with SEBI through its lead managers, who submit a due diligence certificate with it. The draft is made public for comments for at least 21 days.
- 3
3. SEBI observations and RHP
After SEBI's observations, the company files the red herring prospectus (RHP) with the Registrar of Companies. It carries everything except the final price and issue size. The issue opens at least three working days after this filing.
- 4
4. Announce the price band
At least two working days before opening. The cap can be at most 120% of the floor price and must be at least 105% of it. The floor cannot be below face value.
- 5
5. Anchor bidding
Anchor investors bid one day before the issue opens.
- 6
6. Bidding
The issue stays open for 3 to 10 working days. Every application goes through ASBA, so money stays blocked in the bidder's account. If the price band is revised, bidding is extended by at least three working days.
- 7
7. Price discovery
The company and the lead managers set the final price from the bids. Everyone who bid at or above it is considered for allotment, and the final prospectus with the price is filed with the Registrar of Companies.
- 8
8. Allotment and listing
Allotment happens only if at least 90% of the issue is subscribed. Shares are credited to demat accounts, blocked money is released for unsuccessful bids, and the shares list on the exchange.
Who gets what in a book built issue
Regulation 32 of the ICDR Regulations, for an issuer eligible under Regulation 6(1).
Retail individual investors
Share of the net offer
Not less than 35%
Who they are
Individuals bidding up to ₹2 lakh. They may bid at the 'cut-off' price instead of a specific price.
Non-institutional investors
Share of the net offer
Not less than 15%
Who they are
Bids above ₹2 lakh. One-third of this portion is kept for bids of ₹2 lakh to ₹10 lakh, two-thirds for bids above ₹10 lakh.
Qualified institutional buyers
Share of the net offer
Not more than 50%
Who they are
Mutual funds, banks, insurers and other institutions. 5% of this portion is reserved for mutual funds.
| Category | Share of the net offer | Who they are |
|---|---|---|
| Retail individual investors | Not less than 35% | Individuals bidding up to ₹2 lakh. They may bid at the 'cut-off' price instead of a specific price. |
| Non-institutional investors | Not less than 15% | Bids above ₹2 lakh. One-third of this portion is kept for bids of ₹2 lakh to ₹10 lakh, two-thirds for bids above ₹10 lakh. |
| Qualified institutional buyers | Not more than 50% | Mutual funds, banks, insurers and other institutions. 5% of this portion is reserved for mutual funds. |
Anchor investors, as amended in December 2025
- check_circleUp to 60% of the QIB portion can go to anchor investors, allocated on a discretionary basis.
- check_circleEach anchor must apply for at least ₹10 crore in a main board issue.
- check_circle40% of the anchor portion is reserved: 33.33% for domestic mutual funds and 6.67% for life insurance companies and pension funds. Any shortfall in the insurer and pension slice can go to mutual funds.
- check_circleHalf of each anchor's shares are locked in for 90 days from allotment, and the other half for 30 days.
Free account, this exam preselected.
Price band arithmetic
Illustrative numbers. Face value ₹10.
₹200
Highest permitted cap (120%)
₹240
Lowest permitted cap (105%)
₹210
₹450
Highest permitted cap (120%)
₹540
Lowest permitted cap (105%)
₹472.50
| Floor price | Highest permitted cap (120%) | Lowest permitted cap (105%) |
|---|---|---|
| ₹200 | ₹240 | ₹210 |
| ₹450 | ₹540 | ₹472.50 |
How Series IX tests this
Book building is core Series IX ground. Expect allocation percentages (35, 15 and 50, or 10, 15 and 75 for a Regulation 6(2) issuer), the price band limits (cap up to 120% of floor), the bid period (3 to 10 working days), and anchor rules (60% of the QIB portion, ₹10 crore minimum, lock-in).
Watch the direction words. Retail and non-institutional shares are minimums ('not less than'); the QIB share is a maximum ('not more than') for a 6(1) issuer, and flips to a minimum of 75% for a 6(2) issuer. Older notes also carry the pre-December 2025 anchor rule of one-third for mutual funds; the current split is 33.33% plus 6.67%.
FAQs
What is the book building process in an IPO?expand_more
A price discovery method in which the company announces a price band, investors bid within it, and the final issue price is set from the bids received. Everyone who bid at or above the final price is considered for allotment.
What is the difference between book building and a fixed price issue?expand_more
In a fixed price issue the price is known before the issue opens. In book building, only a price band or floor price is known, and the final price is fixed after bidding closes.
What is the cut-off price in an IPO?expand_more
An option for retail individual investors to bid at whatever final price is discovered, instead of naming a specific price. It avoids missing allotment because of a bid below the final price.
How many days is an IPO open in India?expand_more
At least three and not more than ten working days under Regulation 46 of the SEBI ICDR Regulations, with an extension of at least three working days if the price band is revised.
What is the retail quota in an IPO?expand_more
Not less than 35% of the net offer in a book built issue by a company eligible under Regulation 6(1). For a company listing under Regulation 6(2), retail is capped at not more than 10%.
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