The price band in one line
In a book-built IPO, the company does not fix the price in advance. It sets a range, the price band, and investors bid within it. The final price is set after bidding, based on demand at each price.
Floor price and cap price
The price band has two ends:
| Term | Meaning | Example |
|---|---|---|
| Floor price | The lowest price at which you can bid | ₹150 |
| Cap price | The highest price at which you can bid | ₹158 |
| Spread | How far the cap is above the floor | 5.3% |
SEBI’s rules require the cap to be at least 105% of the floor and at most 120% of it. So a floor of ₹150 allows a cap between ₹157.50 and ₹180. The 105% minimum came in from 2022, after some issues used bands only a rupee wide.
Both prices must be above the face value of the share, usually ₹1, ₹2, ₹5 or ₹10.
When the price band is announced
The company announces the price band at least two working days before the issue opens. It appears in newspaper advertisements in English, Hindi and a regional language, and on the stock exchange websites.
The RHP is often filed before the price band is decided, so many RHPs leave it blank. That is why each IPO page on this site shows where the price band came from, the RHP or the exchange notice.
How the final price is set
Bids come in at different prices within the band. After bidding closes, the company and its lead managers look at how many shares were bid for at each price. They then fix the final issue price, sometimes called the cut-off price.
In a popular issue, demand at the cap is usually high enough for the final price to be the cap. In a weak issue, the price may be set lower in the band. Every bid at or above the final price is valid; bids below it are rejected.
Retail investors, employees and shareholder-quota applicants can tick cut-off instead of choosing a price. They accept whatever final price is set. Institutional and non-institutional investors must bid at a specific price. Our cut-off price guide explains this in detail.
A worked example
Say an IPO has a price band of ₹150 to ₹158 and a lot of 94 shares. The company’s earnings per share for the last full year were ₹11.80.
- Minimum application. One lot at the cap costs 94 × ₹158 = ₹14,852. That is what your bank blocks for one lot.
- Valuation at each end. The P/E is ₹150 ÷ ₹11.80 = 12.7 times at the floor, and ₹158 ÷ ₹11.80 = 13.4 times at the cap.
- Final price. Demand is strong, and the price is set at ₹158.
- Your payment. If you are allotted one lot, ₹14,852 is debited. If the price had been set at ₹155, you would pay 94 × ₹155 = ₹14,570, and ₹282 would be released.
These are illustrative numbers and our calculations. The point to remember is that money is blocked at the cap, and you pay the final price.
Lot size and the price band together
The lot size is set so that one lot at the cap price is worth between ₹10,000 and ₹15,000 for a mainboard IPO. A higher price band means fewer shares per lot.
For SME IPOs, the minimum application is much larger, usually two lots worth over ₹2 lakh. Our SME vs mainboard guide covers the difference.
Anchor investors and the price band
Anchor investors bid one working day before the issue opens, at a price within the band. If the final issue price ends up higher than the anchor price, anchors pay the difference. If it ends up lower, anchors still pay their higher anchor price.
The anchor price is a useful early signal. When anchors are allotted at the cap, the lead managers expect strong demand there.
When the price band is revised
A company can revise the price band while the issue is open. When it does, the bidding period is extended by at least three working days, so investors can respond. The total bidding period still cannot exceed ten working days.
Revisions are rare and usually downward, when demand is weak. They are announced through the exchanges and newspapers.
Price band, issue price and listing price
Three prices get mixed up around an IPO, and each means something different.
The price band is the range you bid in. The issue price is the single final price set within the band after bidding; it is what allotted investors pay. The listing price is the price at which the shares open on the exchange on listing day, set by demand in the special pre-open session.
The listing price can be above, at or below the issue price. The difference is the listing gain or loss. Neither the band nor the issue price tells you what the listing price will be.
How to read a price band
A price band tells you the price, not whether the price is fair. To judge it, look at the valuation at the cap price:
- P/E at the cap. Divide the cap price by the latest full-year earnings per share.
- Peers. Compare that P/E with listed companies in the same business, shown in the RHP’s basis for the issue price.
- Market value. Multiply the cap by the shares after the issue to get the company’s market value at listing.
Each IPO page on this site shows the P/E at the upper price and the RHP’s peer table, labelled as our calculation where it is.
Common mistakes to avoid
- Bidding below the final price. A bid at the floor in a popular issue is likely to be rejected. Ticking cut-off avoids this.
- Assuming a narrow band means a fair price. The width of the band says nothing about value.
- Forgetting the block is at the cap. Keep enough balance for the cap price times your lots.
- Comparing prices across IPOs. A ₹1,000 share is not dearer than a ₹100 share. Compare P/E and market value instead.
What to do next
Check the price band and the P/E at the cap on any open or upcoming IPO. Then read how to apply for an IPO to place your bid.
Sources: SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR), on price band disclosure and Regulation 46 on the bidding period; Outcome of SEBI board meeting, 28 Dec 2021 (minimum price band of 105% of the floor price).
Frequently asked questions
What is the difference between floor price and cap price?
The floor price is the lowest price at which you can bid, and the cap price is the highest. The cap must be between 105% and 120% of the floor.
When is the price band announced?
At least two working days before the issue opens, in newspaper advertisements and on the exchange websites. It is often not in the RHP itself.
Is the final price always the upper end of the band?
Usually, when demand is strong, but not always. The company and its lead managers can set it anywhere in the band.
Can the price band be changed after the issue opens?
Yes. If it is revised, the bidding period is extended by at least three working days, and the total bidding period cannot exceed ten working days.
Does bidding at a higher price improve my chance of allotment?
No. All valid bids at or above the final price are treated the same. A bid below the final price is rejected.
What is the price band for a fixed price IPO?
There is none. A fixed price issue has a single price, and you apply at that price.