Every investor, novice or expert, can understand an Initial Public Offering (IPO). However, only some people would know the essential phrases used throughout a company’s IPO process. One such term is Price Band.
What is the Price Band?
When a vendor establishes an upper and lower pricing limit, it is known as a price band.
The lower limit is represented by the bottom band and the upper limit by the top band. For a company to determine how much capital investors are ready to pay for a share of the company, determining the price range is a crucial stage in the book-building process.
The underwriter begins establishing its books once a price band is established. It sends a draft prospectus containing the price band to possible investors. This includes institutional investors, high-net-worth individuals (HNWI), and retail investors.
The seller or the stock market typically specifies this value. To prevent panic selling and market instability, it aids in controlling the volume of stock trading.
Who decides the Price Band?
SEBI, the Indian government’s bureaucracy, and stock exchanges have no role to play in determining the cost of a public issue. Thus, SEBI just verifies the information in the IPO stock market prospectus.
Before deciding on the appropriate price for the IPO, companies and lead administrators do numerous road shows and due-diligence investigations. If companies seek out early recognition, there is a substantial risk that their IPO will fail. In addition, as investors avoid applying for an issue because they dislike the firm or issue the price, it results in unsubscribing. The company may change the offering price or suspend the IPO in this situation.
The promoters or trading stockholders of a company negotiate the price range and the fewest number of assay lots for an initial public offering (IPO) with the lead administrator of the book. Then, at least two working days before the offer opening date, it is announced in widely distributed English and Hindi civil books.
All days are working days except Saturdays, Sundays, and public holidays. These days, saleable banks in Mumbai are open for business for the price band release and the swirl offer period.
Price Band helps the business determine its market value—this aids in determining a reasonable price range and assessing the market demand for equities. Additionally, companies frequently employ underwriters to carefully examine various market and company-related elements to determine a stable price range.
To keep track of the upcoming IPOs and their Price Bands, use the Shoonya app, a handy, easy-to-use online trading platform that provides zero-brokerage trading in the stock market.