Reviewed on 24 Oct 2026 · Source: IPO Bulletin explainer; checked against SEBI ICDR Regulations 2018 (as amended) and offer-document practice
Book building is the process of discovering an IPO’s price by collecting bids from investors within a price band. The company and its lead managers announce a floor and a cap price and open the issue for a few days. During that time investors submit bids stating how many shares they want and the price they are willing to pay. The registrar and the exchanges collect these bids in an electronic book. When the issue closes, the demand at each price level is totalled and the lead managers, with the company, decide the highest price at which the whole issue is subscribed, called the clearing price. Everyone who is allotted shares pays this one price, even if they bid higher. Most IPOs in India use book building because it lets the market, not just the issuer, determine the price, and because it is hard for the issuer to underprice or overprice without seeing demand. In a book-built issue at least 75 percent of the net offer is generally allotted to qualified institutional buyers and non-institutional investors together with retail, in the proportions the rules fix.
Example: A price band of Rs 200 to Rs 210 is announced. After three days of bidding, the book shows enough demand to sell all shares at Rs 210, so Rs 210 becomes the final price. All allotted investors pay Rs 210 per share.
Book building is the process of discovering an IPO's price by collecting bids from investors within a price band. The company and its lead managers announce a floor and a cap price and open the issue for a few days. During that time investors submit bids stating how many shares they want and the price they are willing to pay. The registrar and the exchanges collect these bids in an electronic book. When the issue closes, the demand at each price level is totalled and the lead managers, with the company, decide the highest price at which the whole issue is subscribed, called the clearing price. Everyone who is allotted shares pays this one price, even if they bid higher. Most IPOs in India use book building because it lets the market, not just the issuer, determine the price, and because it is hard for the issuer to underprice or overprice without seeing demand. In a book-built issue at least 75 percent of the net offer is generally allotted to qualified institutional buyers and non-institutional investors together with retail, in the proportions the rules fix.
A price band is the range, with a lower limit (floor) and an upper limit (cap), within which investors may bid for shares in a book-built IPO. The company and its lead managers announce the band in the price band advertisement, usually a few working days before the issue opens, and the Red Herring Prospectus carries the same range. The final issue price is discovered through bidding and is fixed inside this range, so it can never be higher than the cap or lower than the floor. Under SEBI rules the cap should not exceed 120 percent of the floor price, which keeps the range reasonably tight. Retail investors normally bid at the cap or at the cut-off price so that their bid stays valid whatever the final price turns out to be. The band matters because it sets the maximum money you must keep blocked in your bank account: lot size multiplied by the cap price. Companies can revise the band during the issue, but that requires public notice and an extension of the bidding period by at least three working days. Fixed-price issues do not have a band; they have a single price.
A bid is an investor's offer to buy a specified number of shares in an IPO at a price within the announced price band. In a book-built issue, you submit a bid through your broker, your bank's net banking or a UPI-enabled app, stating the quantity in lots and either a specific price or the cut-off option. A bid can be revised upward or downward, or cancelled, while the issue is open, and a revised bid replaces the earlier one. Each bid is recorded in the exchange's order book, and the totals across all prices form the book from which the final price is discovered. The amount blocked for a bid is the number of shares multiplied by the highest price at which you bid, so bidding at the cap blocks the largest sum. If the final price is lower, the extra is released. Only one bid per category per PAN is generally allowed, with bids from the same PAN in the same category treated as duplicates. Bids placed by retail investors on the last day are accepted until the exchange cut-off, typically 5 pm, though UPI approval for the mandate needs to be completed within the same window.
Worked example
A price band of Rs 200 to Rs 210 is announced. After three days of bidding, the book shows enough demand to sell all shares at Rs 210, so Rs 210 becomes the final price. All allotted investors pay Rs 210 per share.
