Who decides the Price Band in an IPO?
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- Updated On:25-Aug-2022
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Short Answer
The lead managers and the company firmly decide the price band in an IPO. A calculated decision is made regarding the price such that it can appeal to a greater audience while valuing the company correctly for its worth.
Detailed Answer
Companies and lead managers have to figure out the sweet spot to value the IPO correctly.
The company and its lead managers take the firm decision of pricing the price band of the IPO. They are extensively involved in understanding what the correct price point should be for the IPO. If you think the SEBI might decide the price point, well, you're wrong as SEBI approves the processes and ensures that all the rules and regulations are kept in check before the IPO rolls out.
However, companies should keep in mind that the price point for every share in the IPO has to be calculated to come at a perfect saturation point. Investors don't feel that the company is greedy to ask for more and shouldn't be too cheap, which might cause a company's devaluation. Typically, the price band of an IPO are issued two working dates before the IPO would be open to accepting applications.
However, the prices can vary significantly based on any external factor that might affect the company. The difference could be 20% greater or lesser than the stated value. For the change to occur, a press release and a notification to the stock exchange should be made with necessary changes in the website to ensure that the revision of prices is specific.
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IPO is the primary stage where the company goes public and starts gaining investments from people. It is essential for the company to manage the details properly. For Public, IPO should remain open for at least 6 days and for maximum 10 days.
Investing in an IPO can be considered safe as there are no major Capital Loss risks and most companies that come up with an IPO price their shares at decent valuations which gives an opportunity to the investors get the shares at a discount from the market price. Most good quality companies also give good Listing gains and good returns in a short time. Some examples are, IRCTC, Route Mobile, Burger King, etc.
If you are a Zerodha customer, you can apply for IPO online through Zerodha Console (Zerodha Back-office). The process for applying an IPO process has been explained in detail above. Here are few other answers to important queries that you may want to learn.
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IPOs can be a good option for beginners as they provide an opportunity to get the shares of good companies at an attractive price. Though IPOs can provide good listing gains and quick profits, good companies can help you to create massive wealth in the long term.
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