How the price of an Indian IPO is set, and why bidding below it gets you nothing

How to read this. Nothing here assumes you have applied for an IPO before. Every term is explained the first time it appears. Boxes marked The arithmetic carry the numbers, so if you want to check a claim rather than take it, the working is there. Boxes marked If you already follow IPOs are for readers who know the basics and want the part that is not obvious.

This post answers one question that almost every first-time applicant gets wrong, and it is not a question about odds. If you bid below the price the issue ends up at, you do not get worse odds. You get nothing, and you were never in the allotment at all.

01 · Two different things are called cut-off

Most of the confusion about IPO pricing comes from one word doing two jobs.

The cut-off price is a price. It belongs to the issue. It is the highest price at which the whole offer is spoken for, and it is discovered from the bids once bidding closes. Nobody chooses it. It falls out of the book.

Bidding at cut-off is an instruction. It belongs to your application. It means "allot to me at whatever price is discovered, I am not naming one." Only retail applicants, employees and retail shareholders of the issuer may use it. Institutions and wealthy individuals may not: they have to name a number.

Those are different things, and the second one does not mean what most people assume. Bidding at cut-off sounds like bidding at the lowest price. It is the opposite. It is an unconditional acceptance of the highest price in the range, and your money is blocked at that highest price while the bidding runs.

SEBI's own General Information Document keeps the two apart. Broker explainers usually do not, which is why a large number of retail applicants believe they are being clever by bidding at the floor.

02 · The demand schedule, and how the price is read off it

During the three days of bidding, both exchanges publish a price-wise bid book. For every price point in the band it shows the number of bids, the quantity bid at that price, and the cumulative quantity, each split between retail and non-retail. It is free, it updates through the day, and hardly anyone looks at it.

The cumulative column is the whole machine. Cumulative demand at a price is the sum of every bid at that price or higher, because somebody willing to pay ₹120 is by definition also willing to pay ₹115. So as you walk down the band, demand only grows. It is a staircase.

The cut-off price is then read straight off that staircase: the highest price at which cumulative demand is at least the number of shares on offer.

SEBI publishes a worked example of exactly this. Five thousand shares on offer, band ₹120 to ₹144.

At ₹144 only a fifth of the offer is spoken for. At ₹140, half. At ₹135 cumulative demand reaches exactly the 5,000 shares available, so ₹135 is the highest price at which the issue is fully subscribed. That is the cut-off.

Now look at what the last two rows are not. The 1,000 shares bid at ₹130 and the 500 at ₹120 are not scaled down. They are not partially filled. They do not go into a draw. SEBI's accompanying line is four words longer than it needs to be and completely unambiguous: investors who bid below the cut-off price do not receive shares.

03 · Bidding below the price is not bad luck, it is an invalid bid

This is the part worth being precise about, because the difference between "unlikely" and "impossible" is the difference between a strategy and a mistake.

Once the price is set, the rule from SEBI's General Information Document is this:

After determination of the Offer Price, the number of Equity Shares Bid for by a Bidder at or above the Offer Price may be considered for Allotment and the rest of the Bid(s), irrespective of the Bid Amount, may automatically become invalid.

"Irrespective of the Bid Amount" is doing real work in that sentence. A ₹50 crore institutional bid one rupee below the final price is worth exactly what a ₹15,000 retail bid one rupee below it is worth, which is nothing. Size does not rescue a bid that named the wrong number.

The arithmetic. Take a constructed but realistic book. One crore shares on offer, band ₹100 to ₹120, which is the widest the rules allow. The issuer passes the profitability tests, so the split is 50% institutions, 15% wealthy individuals, 35% retail, and up to 60% of the institutional portion goes to anchors the day before bidding opens. That is 30 lakh shares gone before the auction starts.

Retail bids 40 lakh shares, all at cut-off, so that demand sits at every price point at once. Institutions and wealthy individuals name prices:

Price	New priced bids	Cumulative priced	Plus anchor and retail	Times the offer
₹120	55,00,000	55,00,000	1,25,00,000	1.25, clears here
₹118	9,00,000	64,00,000	1,34,00,000	1.34
₹115	12,00,000	76,00,000	1,46,00,000	1.46
₹110	8,00,000	84,00,000	1,54,00,000	1.54
₹105	4,00,000	88,00,000	1,58,00,000	1.58
₹100	3,00,000	91,00,000	1,61,00,000	1.61

Demand covers the offer at the very top of the band, so the walk down never starts. The price is ₹120, the ceiling.

Total priced bids in the book: 91 lakh shares. Priced bids at ₹120: 55 lakh. Everything else, 36 lakh shares, 39.6% of every priced bid placed, became invalid the instant the price was set.

These figures are a constructed illustration, not a real issue. The arithmetic in it was computed and checked. The real proportion for any given issue is calculable from the exchange bid file and nobody publishes it.

The wealthy individual who bid ₹115 in that book was not unlucky. They were not in the draw.

What happens when the book is weaker

Change one thing. Suppose retail bids only 28 lakh shares, below its own quota, and the priced bids are thinner throughout. Then the walk down the staircase actually happens, and the book covers the offer at ₹105 rather than ₹120.

Two things follow for a retail applicant, and they point in different directions.

If you bid at cut-off, you are fine on price and you get money back. Your money was blocked at the ceiling of ₹120 and you pay the discovered ₹105. On a lot of 125 shares: ₹15,000 blocked, ₹13,125 paid, ₹1,875 released. That is 12.5% of your money sitting idle for the six days of the cycle, which is the real cost of bidding at cut-off, and it is a small one.

If you bid a number, the floor does not save you either. Someone who bid ₹100 in that weaker book is still below the ₹105 line, so their bid is still invalid. Only ₹105 and above survived.

There is no price in the band, other than the ceiling, at which a bid is guaranteed to stay valid. That is the structural point, and it is worth stating plainly: for anyone who is not a large institution with an actual valuation of the company, everything below the top of the band is a trap. Bidding at cut-off is what puts you at the ceiling automatically.

04 · Retail cannot push the price down, and mechanically pushes it up

This one follows from the rules rather than from anyone's intent, and it is uncomfortable.

A bid at cut-off says "any price in the band." So it counts as demand at the ceiling and at the floor equally. A bidder who never names a price cannot, by construction, exert any downward pressure on the price.

Now give that bidder a guaranteed 35% of the offer. You have installed a large block of demand that never says no, and it is there before a single institution has bid.

The arithmetic. Take the strong book from chapter 03 and strip out retail's price-indifferent 40 lakh shares. Read the same staircase again.

Price	With retail	Times	Without retail	Times
₹120	1,25,00,000	1.25	85,00,000	0.85
₹118	1,34,00,000	1.34	94,00,000	0.94
₹115	1,46,00,000	1.46	1,06,00,000	1.06, would clear here
₹110	1,54,00,000	1.54	1,14,00,000	1.14

Without retail the book does not cover at the ceiling. It covers at ₹115.

So retail's participation moved the clearing price from ₹115 to ₹120, a rise of 4.35%, and retail then paid that higher price itself. On the 35 lakh shares allotted to retail that is ₹5 more per share, or ₹1.75 crore of extra cost borne by retail, out of ₹5 crore of extra proceeds collected from all buyers on a ₹120 crore issue.

The retail quota is usually described as a protection. On price, it is not merely a weak protection. Combined with cut-off bidding it raises the price retail pays. That is not a conspiracy, it is what falls out of two rules that are each reasonable on their own: reserve a share of the offer for small applicants, and let small applicants accept the discovered price without naming one.

05 · The band is narrow and the answer is the top

Everything above describes a price discovery mechanism. Here is how much discovering actually happens in India.

The ceiling may not sit more than 20% above the floor. There is also a minimum width, and it exists because of what issuers did before there was one: ICICI Securities filed a band of ₹519 to ₹520 in March 2018, which is 0.19% wide, a fixed price with a decorative second number attached.

That minimum is usually quoted as 5%, and it survived a check that looked at first as though it had failed. Of the nine issues open on the exchange on 28 September, eight carried bands between 5.03% and 6.67%, clustered just above the number. One did not. Runwal Enterprises was listed at ₹290 to ₹302, which is 4.14% wide and under the minimum.

Reading the actual bid book for that issue settles it. Bids were being taken at price points running from ₹290 up to ₹305, so the band is ₹290 to ₹305, which is 5.17% wide. The rule held. The exchange's own summary listing, which is the page most people would read the band off, had the ceiling wrong by three rupees.

That is worth a moment, because it is the whole argument for this site in one example. The summary was wrong and the primary record was right, and the only way to know which was which was to open the primary record.

Here are four of the largest recent issues.

NSE's band was exactly the legal minimum, to two decimal places.

What we can and cannot claim from that. Four issues is four issues, and the paragraph above is a live demonstration of why that matters. We have not yet pulled the band and the final price for every mainboard issue of the year, so we are not claiming that Indian IPOs always price at the ceiling. We are claiming that these four did, that we have not been able to find a single mainboard issue since 2022 that priced below its ceiling, and that we are looking. If you know of one, tell us and it goes on the record page. If the full set turns up a reasonable number of issues priced below the ceiling, this chapter is wrong and we will say so in the same place.

Hyundai, which settles the argument about floor bidding

This is the cleanest case in the data, and it answers the question from chapter 03 with a real issue rather than a constructed one.

• Band ₹1,865 to ₹1,960
• Retail subscribed 0.50 times, undersubscribed
• Wealthy individuals 0.60 times, undersubscribed
• Institutions 6.97 times, overall 2.37 times
• Price set at ₹1,960, the ceiling
• First day close ₹1,819.60, which is 7.16% below the issue price and 2.43% below the floor of the band

Two of the three pots failed to fill. The market's own verdict one day later was a price below the bottom of the range. The issue still priced at the top.

It works because the institutional book at 6.97 times covered the whole offer at the ceiling on its own, and because retail's undersubscribed bid was nonetheless unconditional at every price. Weak retail demand cannot pull a price down when retail never expressed a price.

Follow the two retail applicants through it. The one who bid ₹1,865 because it looked like a bargain got nothing, and lost nothing. The one who bid at cut-off got shares at ₹1,960 and was down 7% the next day. The applicant who was excluded did better than the applicant who was allotted. That is a strange market, and it is the market as it is designed.

The sellers collected ₹27,870 crore at the ceiling against ₹26,519 crore had they priced at the floor. The difference, ₹1,351 crore, is what the top of a 5% band was worth on that one issue.

When the book fails, issuers cut the quantity, not the price

ICICI Securities again, March 2018. The book would not fill: 0.95 times overall, with retail at under a tenth of its quota.

The issuer did not cut the price. It cut the size, from roughly ₹4,017 crore to ₹3,480 crore, and priced at ₹520, the ceiling of that 0.19% band. The stock closed its first day 14.4% below the issue price.

From the issuer's side this is rational. Pricing below the ceiling is a public, permanent, headline admission that the book failed. Trimming the issue size is a technical adjustment that most coverage does not mention.

And the regulator has recently made that lever easier to pull. A SEBI circular of April 2026 allows the fresh issue size to be varied by up to 50% either way without refiling the draft prospectus, up from 20%. The quantity lever is now four times more flexible. The price lever carries exactly the same stigma it always did.

If you already follow IPOs. The received view is that book building discovers the price of an Indian IPO. On this evidence what book building discovers is the quantity that clears at the ceiling. The price is set by the bankers before bidding opens, ratified by the anchor book the day before, and confirmed by three days of a process that in practice has one available answer. The band is not a range of possible prices. It is a formality with a 5% tolerance.

06 · The number nobody publishes

There is one more subtlety in the rules, and it is where deliberate underpricing formally lives.

The cut-off price and the price you actually pay are not required to be the same number. From the General Information Document:

The Issuer, in consultation with the Book Running Lead Managers, may finalise the Offer Price at or below such cut-off price.

So there are two numbers:

• The cut-off price, read off the demand schedule. A fact about the book.
• The Offer Price, what the issuer charges. A decision, which may be the cut-off price or anything below it.

Note the asymmetry the rule permits. The issuer may price below the clearing price. It may never price above it. Pricing below the clearing price is what produces a listing pop, and it is entirely legal and entirely routine.

The gap between those two numbers, multiplied by the shares sold, is deliberate underpricing measured rather than inferred. It is not an opinion about whether the bankers were right. It is a subtraction.

As far as we can find, nobody in India computes it. It is computable, from the closing demand schedule that both exchanges publish during bidding, against the price announced afterwards. So is a second number: the share of priced bids that fell below the final price and became invalid, which tells you how much of the "subscribed 40 times" in the headline was never going to be allotted anything.

Both depend on the bid book at the moment bidding closes, and that page is not reliably archived once the issue is done. It has to be captured on the day. That is now on the build list, and it has to be in place before the next issue opens, because this data cannot be recovered afterwards.

When those two numbers exist for enough issues, they go on the record page with the sample size and the condition that would show the pattern to be wrong, the same as everything else here.

What to take from this

1. Bidding below the final price is not a long shot, it is an invalid bid. You are not in the draw. Size does not help.
2. There is no safe price in the band except the ceiling. Bidding at cut-off puts you there automatically and refunds the difference if the price comes in lower.
3. Bidding at cut-off costs you the idle money, not the price. Your full amount at the ceiling is blocked for about six days.
4. Retail's unconditional demand raises the price retail pays. That is arithmetic, not intent.
5. The four largest recent bands were between 5.00% and 5.26% wide and all four priced at the ceiling. We have not run the full year yet, and we will publish it either way.
6. Read the band off the bid book, not off a summary page. One of the nine issues open on 28 September was listed with the wrong ceiling on the exchange's own summary.
7. A weak book usually shows up as a smaller issue, not a lower price. If the size was cut, that is the tell.

One postscript, because this site publishes what happens next as well as what the documents say. NSE's shares, the worked example in the first post in this series, dipped below their listing price on 28 September, four trading days after listing, on an issue that was subscribed 5.71 times. That is a market price rather than a figure from a filing, so treat it as reported rather than cited. It is also the plainest available demonstration of the point: a subscription multiple measures how many applications arrived, and it tells you nothing at all about what the shares are worth.