What is the Book Building Process in an IPO?

Definition of Book Building in IPO

The Book Building Process in IPO refers to a method where the issuing company, together with its underwriters or merchant bankers, invites bids from investors within a defined price range (price band). Based on these bids, the final issue price (cut-off price) is determined.
In simpler terms, it builds a “book” of demand by collecting information from investors who specify how many shares they want and at what price within the band. That demand input guides the determination of final pricing.
Because it links investor interest with pricing, this process aligns the company’s offering with market realities rather than just guessing a fixed price.

Difference Between Fixed Price Issue and Book Building Issue

Here are the key differences:

Fixed Price Issue

The issuer sets a specific price per share in advance. Investors apply at that price. The full demand is unknown until the issue closes.

Book Building Issue

A price band is announced. Investors bid within that range. After bids close, the final price is fixed based on aggregated demand.

Comparison in table form:

Feature	Fixed Price Issue	Book Building Issue
Price determination	Predetermined	Demand-based
Demand visibility	Low until close	Higher during bidding
Investor participation	Simpler for retail	More flexible for all categories
Risk of mispricing	Higher	Reduced by market input

Because of these advantages, many modern IPOs favour the Book Building Process in IPO over fixed price methods.

Step-by-Step Book Building Process in IPO

Appointment of Merchant Bankers and Underwriters

First, the company planning the IPO appoints one or more merchant bankers (also called book-runners or underwriters). They manage the process of the book building, advise on structure, and handle regulatory filings. 

Price Band Announcement

Next, the company and the book-runners decide a price band—a lower and upper limit of share price (for example ₹100-₹120 per share). Investors will bid only within that band.
The price band gives clarity to investors about the expected range and allows the issuer to gauge likely demand at different price levels.

Bidding by Investors (Retail, HNI, QIB)

During the bidding period, the book is “open” and investors from different categories (Retail Individual Investors (RII), High Net Worth Individuals (HNI), Qualified Institutional Buyers (QIB)) place their bids specifying quantity and price within the band.
Investors may revise bids until the closing time. The accumulated bids form the “book” which reflects demand across price levels and investor categories.

Book Closure and Demand Analysis

Once the bidding period ends, the book-runners review the bids. They see how many shares are bid at each price point, how many investors participated, and from which category.
Based on this demand analysis, the final issue price (also called the cut-off price) is determined at a level where most shares can be sold and investor interest is robust.

Finalization of Issue Price (Cut-Off Price)

The book-runners, in consultation with the issuer, fix the final cut-off price. All successful bidders at or above that price will be allotted shares at the same final price. Bids below the cut-off may be rejected.
For example, if the price band was ₹50-₹70 and demand at ₹65 is highest, then ₹65 may become the cut-off price.

Share Allotment and Listing

After price finalization, shares are allotted to the successful bidders based on allocation rules and investor category quotas. The shares are then listed on the stock exchange and start trading. The listing price and performance often depend on how demand and pricing align. This completes the Book Building Process in IPO, enabling companies to price their offering based on real investor feedback.

Types of Book Building

100% Book Building Process

In a 100% book building issue, all shares of the IPO are offered through the book building route (i.e., all bids are collected and the final price is determined by demand). This method maximizes price discovery and is fully demand-driven.

Partial Book Building Process

In a partial book building issue, a portion of the shares is offered through book building (bidding process), and the remaining shares are offered at a fixed price. For example, 75% may be via book building and 25% fixed price.
This offers a hybrid approach: some price flexibility with some certainty.

Advantages of the Book Building Process

Efficient Price Discovery

The Book Building Process in IPO allows the company to discover a price that reflects real investor demand rather than guessing. The price band and bids provide live data on what investors are willing to pay. 

Transparency in IPO Allotment

Because the process shows demand across price levels and categories, it offers more transparency than a fixed-price method. Investors can see subscription levels and the book built during the process. Also, regulatory frameworks often require disclosure of subscription ratios, which enhances trust.

Wider Participation from Different Investor Categories

The method allows participation by institutional investors, HNIs, and retail investors. Each category bids, creating a broad demand base and equitable allocation. It enables both large and small investors to participate meaningfully.
Thanks to these benefits, many companies and regulators favour the book-building route.

Limitations of the Book Building Process

Risk of Overvaluation or Undersubscription

Although book building improves price discovery, it does not eliminate risk. If investor demand is over-hyped, the final price may end too high, and the listing may disappoint. If demand is weak, the issue may be undersubscribed. 

Complex Process for Retail Investors

The bidding process, price band, and cut-off price mechanisms can be more complex for individual retail investors compared to a fixed-price issue, where they simply apply at a known price. Retail investors need to understand how to bid, how the cut-off price works, and how allocation works, which may pose challenges for some.

Dependence on Market Sentiment

Because the final price is determined by investor demand, the process heavily depends on market sentiment, macro-economics, and investor mood. These factors can shift rapidly, injecting uncertainty into the book from the outset. 

Example of Book Building in Recent IPOs

Oversubscribed IPOs and High Listing Gains

When a company uses the Book Building Process in an IPO and demand significantly exceeds supply, you often see oversubscription and strong listing gains. For example, when many IPOs in India hit hundreds of times the subscription, the cut-off price climbed accordingly.
These cases show how strong demand in the book-building phase influences pricing and aftermarket momentum.

Cases Where IPOs Underperformed Despite High Demand

There have also been situations where, although the book was heavily subscribed, the final pricing turned out high, and the listing day performance was weak. This shows that while book building offers better pricing mechanics, it cannot guarantee upside post-listing or eliminate all risk.
Detailed case studies (with IPO names and numbers) can illustrate these twin outcomes clearly.

Conclusion – Why Book Building is Crucial in IPOs

The Book Building Process in IPO has become the dominant pricing mechanism because it aligns issuer ambition with investor demand. It helps companies set a better price, gives investors more transparent participation, and widens the base of bidders.
While risks remain—such as market swings, valuation errors, and retail complexity—the advantages outweigh the limitations for many issuers and markets. For anyone tracking IPOs, understanding this process offers insight into how new issues are priced, how demand builds, and how listing outcomes may unfold.

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