How Is The Opening Price Of An Ipo Determined

How is the opening price of an ipo determined

Types of IPO Company Issues: 

Broadly defined, there are two types of IPO we see in the primary market (i) Fixed Price IPO Issue & (ii) Book Building IPO Issue.

How is the opening price of an ipo determined

An IPO can be made available by the company in either of the way or as a combination of both.

1> Fixed Price Issue:

In the fixed price IPO issue, the company along with their underwriters evaluates the total assets, liabilities, and every other financial aspect. Then they study those figures to determine the IPO price (face value per share).

This IPO price is fixed from the first day of issue and is printed in the order document.

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It does not change with the demand of the IPO. The total demand for that IPO is known only after the issue is closed. Usually, it has been seen that in fixed price issue the oversubscription levels are quite high and sometimes touches several hundred times.

2>Book Building Issue:

In the book building issue method, the price is determined during the process of IPO.

How to Evaluate an Initial Public Offering (IPO)

There is no fixed share price; instead, the company provides a price band. The lowest price in the band is named as the ‘floor price’ and the highest price is named as the ‘cap price’.

The price band is printed on the order document.

How is the opening price of an ipo determined

And the investors are free to bid for the desired quantity of shares with the price which they are willing to pay but within the price band. The share price is then decided based on the bids.

How is the opening price of an ipo determined

The securities are then offered at a price in-between the floor price and cap price. The demand of that IPO is published every day as the book is built.

[Read More:How to Apply for IPO Stocks Online?]

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