Anchor allocation is the first step of a mainboard IPO’s public timetable. One working day before the issue opens to the public, the company and its lead managers allot shares to anchor investors, who are large institutions such as mutual funds, insurance companies and foreign funds. The price is fixed in advance, usually at the upper end of the price band or at a price the company chooses inside it, and the portion offered to anchors can be up to 60 percent of the QIB quota, with one third of that portion reserved for domestic mutual funds. The minimum bid for an anchor investor is Rs 10 crore. Anchors cannot sell immediately: half of their shares are locked in for 30 days and the rest for 90 days from allotment. The names of anchor investors and the number of shares each receives are disclosed in an exchange filing the same day, and retail investors often read a strong anchor list as a sign of institutional confidence. It is only a signal, not a guarantee of listing performance. SME issues do not use anchor allocation in the same way.
Example: An IPO opens on Wednesday. On Tuesday, the lead managers allot 30 lakh shares to 12 anchor investors at Rs 150, the top of the price band. The anchor list is published that evening, and public bidding starts the next morning.