Book Building
Book building is the price discovery process used in most Indian IPOs, where institutional and retail investors submit bids within a price band, and the final issue price (cut-off price) is determined by aggregating demand across all bids.
Book building was adopted as the standard IPO pricing mechanism in India following SEBI's liberalisation of capital markets in the mid-1990s, largely replacing the fixed-price method where a single price was declared upfront regardless of demand. The process was named after the investment banker practice of literally 'building a book' of orders from investors at various price levels to gauge where true demand resided.
In a book-built IPO, the company and lead managers announced a price band and opened a subscription window for three working days. During this period, bids were submitted through a centralised system — the BSE/NSE bidding platform accessible via registered brokers, banks, and the UPI-ASBA mechanism for retail investors. Each bid specified a quantity and a price within the band (or 'cut-off' for retail). The system updated and published live subscription data for each category multiple times daily, creating a real-time feedback loop that informed investors' decisions and was closely tracked by market participants.
The distinction between book building and fixed-price IPOs lay in who bore the price-discovery risk. In a fixed-price issue, the company set a single price and bore the risk of mispricing — either leaving money on the table (if set too low and the stock listed at a massive premium) or getting a poor subscription (if set too high). Book building shifted this risk toward market-determined pricing, reducing the likelihood of extreme mispricing, though underwriters retained discretion in setting the initial price band.
SEBI regulations permitted a third variant called the 'fixed price + book building' method, where a portion of the issue was at a fixed price and the remainder was book-built. This was rarely used in practice for main-board IPOs but appeared in some SME IPO structures. The SME IPO platform on NSE Emerge and BSE SME used a modified book-building process with different minimum application sizes and allotment rules suited to smaller issuers.
Post-subscription, the final issue price was typically set at the cap of the price band when the book was fully subscribed (the standard outcome in oversubscribed issues). Lead managers then finalised allotments, and the final prospectus was filed with SEBI and the Registrar of Companies (RoC) before listing. The entire timeline from DRHP filing to listing, while variable, typically ranged from three to six months, encompassing SEBI's review period, marketing activities (roadshows and analyst presentations), anchor investor allocation, subscription period, allotment, and listing.