The Indian primary market has been witnessing a surge in initial public offerings (IPOs) on the main board of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). In 2024, a total of 90 companies went public, with some experiencing overwhelming demand from investors. Companies like Vibhor Steel Tubes, Manba Finance, and KRN Heat Exchanger received bids for over 200 times their IPO size.
One interesting aspect of the IPO frenzy is the concept of the cut-off price option. This option allows investors to bid at any price within the price band specified by the company. For example, if an IPO is priced between ₹100-150, investors can bid any amount within this range. However, choosing the cut-off option does not guarantee allotment, even if the final IPO price is lower than the cut-off price selected by the investor.
In recent years, very few IPOs have priced their shares below the upper end of the price band, making the cut-off option somewhat irrelevant. Companies like Parag Milk have even had to adjust their IPO price due to lack of investor interest, resulting in a lower-than-expected price for retail investors.
Overall, the increasing trend of ignoring the cut-off option in IPO applications highlights the changing dynamics of the primary market. Investors are now more focused on maximizing their chances of getting allotment by applying at the upper end of the price band, rather than relying on the cut-off option. This shift in investor behavior reflects the evolving nature of IPOs in India and underscores the importance of staying informed and adaptable in the ever-changing market environment.
