What's the difference amid fixed value IPO and book-built issue?

Typically you will have seen, if you appear at the historical drift in current times, most of the banking IPOs have been fixed value IPOs. To begin with the difference, a book-built IPO is one where a book is opened and there are bids invited. There is a value level that is showed - a lowest rate level and the higher close of the cost level. So shareholders of all class, ie. you have the institutional shareholders, you have the high net worth shareholders and the retail shareholders, all of whom bid for the issue at a cost, that is, anywhere amid the minimum range, that's the lesser band and the higher band and depending on the number of applications received, the highest number of bids received at a exact value, the value stays there. But in case of fixed value issue, it's rather of a no-brainer because the issue value is fixed, it is obtainable to you, you can take it or leave it. You need not suppose of whether you ought to bid for an upper figure or a lesser figure

Of all the IPOs that had occurred in December, which technique was commonly used - book-built or fixed value? Which will you favor personally?

I suppose the 1th book-built IPO was Hughes Software, if I am’t wrong, I suppose it was way back in 1997. Thereafter, the drift has been mainly in favor of book-built IPOs. And globally, the drift is towards book-built IPOs. In the Indian context it's really the banks that have thrived on fixed cost IPOs. Now, why is that the case? It actually is the function of the viewers that you are addressing. If you are addressing viewers, that are mainly the retail shareholder base, fixed cost IPO is what sells.

Whereas, if you are appearing at the wider band, you seem at institutional shareholders predominantly, you are appearing at the high net value shareholders, then show a least (value) and try and extract more by having a book-built IPO, the drift very clearly is towards book-built public offering.

In book-built, do you believe there is a superior cost discovery mechanism, in the sense that depending upon the demand and the number of the bids that they have got, they would learn a cost, does it have more strength?

It will depend; there are always 2 sides to each story. For the firm, positively it's a lot superior. For the shareholder, mainly the retail investor, those retail investors who go by crowd mentality and will desire to offer simply because an institution bids at a sure cost, I believe there is a drift, based on studies that we have done, we have found that most retail investors offer at the cut-off cost, which ways that whatever cost that it settles at, you bid at that cost. So in that case the retail investor isn’t really doing his homework and there is a prospect that if he obtains the mistaken close of the bet, he Can be badly hurt.

In that sense, when it's not a fixed value and it's book-built, you have a cut-off value and you have the option to not bid for it in case it's upper than you had expected?

Yes completely. Say for example, you have expected; let’s suppose a cost band of Rs 100-Rs 125 for a concern XYZ. Assume own estimates and the estimates of the firm shows that a fair cost is Rs 110, you go and bid Rs 110 and then find that the revealed value was Rs 120, you are automatically eliminated from the allotment process, which is fair enough. You are out of the allotment process because you did not suppose or rather you won't be willing to pay Rs 120. But the point I am annoying to make is shareholders are using the simple option of simply bidding at the cut-off cost, which is fine in the market, that is, (viewing) a drift of moving upwards, but anywhere drop the line it Can show costly.