Book-building: how an IPO's price is set

A company going public does not walk in with a fixed price tag. It announces a range — a floor and a cap — and lets investors decide where in that range the shares should be priced. The process is called book-building, and it is how almost every Indian IPO works.

The alternative is a fixed-price issue, where the company names a single price upfront and investors either take it or leave it. Book-building is the opposite: the price is discovered from demand over a few days of bidding. The company and its merchant bankers collect bids from institutional investors, high-net-worth individuals, and retail applicants, then set the final price where the book is comfortably covered. That price is filed in the prospectus with the Registrar of Companies after the bidding closes. ¹

The price band: what it is and the hard limits on it

The price band has two numbers. The floor is the lowest price at which the company will sell its shares. The cap is the highest. Investors bid anywhere in that range, and the final price lands somewhere between the two — or at the cap, if demand is strong enough.

SEBI puts hard limits on how wide that band can be. The cap cannot exceed 120% of the floor. If the floor is ₹100, the cap cannot go above ₹120. At the same time, the cap must be at least 105% of the floor — a band of ₹100 to ₹105 is the narrowest allowed. ¹ The rule prevents the company from setting a band so wide that it is meaningless, or so narrow that it defeats the purpose of price discovery.

There is also a floor below the floor. The floor price — and the final price — cannot be less than the face value of the share, the nominal value a company assigns each share when it is created. A company cannot price its IPO below that number. ¹

The company must announce the floor price or the price band at least two working days before the issue opens. The announcement is made through pre-issue and price band advertisements in the same newspapers where the public announcement of the issue was published. ¹ Those advertisements must include the relevant financial ratios calculated for both ends of the band, and must direct investors to the “basis of issue price” section of the offer document, where the company explains how it arrived at the range. ¹

Constraint	Rule
Cap relative to floor	≤ 120% of floor, and ≥ 105% of floor
Floor relative to face value	Floor and final price ≥ face value
Advertisement timing	At least 2 working days before the issue opens
Advertisement content	Financial ratios for both ends; reference to “basis of issue price”

How long the IPO stays open

The bidding window has a minimum and a maximum. An IPO must be open for at least three working days and no more than ten working days. ¹ Within that range, the company chooses how long to keep the book open.

If the price band is revised during the issue — the company decides the range was set too low or too high — the bidding period is extended by a minimum of three working days, and the total window still cannot exceed ten. ¹ A revision signals that the initial band missed the market’s expectation badly enough that the company and its bankers chose to adjust.

Force majeure events — a banking strike, a natural disaster, a shutdown of the exchanges — can also extend the period. The issuer may add at least one working day, but must record the reasons in writing. ¹

The minimum you can apply for

An investor cannot bid for a single share. The company sets a minimum application value — the smallest amount an applicant must commit to enter the bidding. That minimum must fall between ₹10,000 and ₹15,000, and applications come in multiples of that lot. ¹ If the minimum is ₹12,000, you bid for ₹12,000, ₹24,000, ₹36,000, and so on.

The amount paid at application depends on the issue type. For a fresh issue — where the company issues new shares and keeps the proceeds — the applicant pays at least 25% of the issue price per share at application. For an offer for sale — where existing shareholders sell their shares and the company gets nothing — the full issue price is due upfront. ¹

Issue type	Payment at application
Fresh issue	At least 25% of the issue price
Offer for sale	100% of the issue price

Who runs the book and underwrites it

The company does not run the process itself. It appoints one or more merchant bankers as lead managers, whose names appear in the draft offer document and the final offer document. ¹ These are the institutions that design the price band, market the issue to institutional investors, collect the bids, and recommend the final price.

The lead manager must also underwrite the issue. Underwriting is a guarantee: if the public does not buy enough shares, the lead manager buys the shortfall. The syndicate members — other banks and brokers who help sell the issue — sub-underwrite with the lead manager, but the lead manager is ultimately on the hook. ¹ This is not optional. The rule ensures someone with deep pockets stands behind every IPO, so a failed issue does not leave the company stranded without the capital it planned to raise.

The floor on a valid allotment

An IPO cannot proceed to allotment if fewer than 1,000 investors end up with shares. The rule is absolute: the issuer shall not make an allotment if the number of prospective allottees is less than one thousand. ¹ An issue that cannot attract a thousand allottees cannot be allotted at all.

For categories other than retail, non-institutional investors, and anchor investors — that is, for qualified institutional buyers (mutual funds, insurers, pension funds, foreign portfolio investors) and employees — allotment is proportionate within the category: if QIBs bid for three times the shares reserved for them, each gets roughly one-third of what they applied for. ¹ Retail allotment in an oversubscribed issue works on a different principle, which the allotment piece covers in full.

The 1,000-allottee floor stops a company from listing with only a handful of shareholders — a stock that would be illiquid and easy to manipulate.

Footnotes

1. SEBI ICDR Regulations, 2018, last amended on March 8, 2025. sebi.gov.in. Citations are to Regulation 29 (price and price band), Regulation 30 (differential pricing), Regulation 46 (period of subscription), Regulation 47 (minimum application value), Regulation 49 (allotment procedure), and Schedule XIII (book-building process), and the definition of “book building”. ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸ ↩⁹ ↩¹⁰ ↩¹¹ ↩¹² ↩¹³ ↩¹⁴