How does IPO work?

[Ashish Jain]

This thread is in continuation of my last thread 'Some basic questions'. I didn't want to ask this question there, because in that case, original questions might have gone unanswered.

Recently Indiabulls offered its IPO at issue price of 19. It was oversubscribed 10 times I guess. The issue opened at 24. What factors caused the share price to increase by 5 even without a single share being traded? Was it because of over subscription which in-turn means huge demand?

What if there was no over subscription and issue was 100% subscribed? In that case should the issue have opened only at 19?

What if there was no oversubscription and issue was only 50% subscribed? In that case should the issue have opened at less than 19?

 

[Traderji]

Recently Indiabulls offered its IPO at issue price of 19. It was oversubscribed 10 times I guess. The issue opened at 24. What factors caused the share price to increase by 5 even without a single share being traded? Was it because of over subscription which in-turn means huge demand?

As there was more demand by buyers and their demand was unfulfilled they were willing to bid at a higher price (when the issue got listed) to satisfy their demand. This is the reason why the IndiaBills IPO opened higher by Rs.5.00

What if there was no over subscription and issue was 100% subscribed? In that case should the issue have opened only at 19?

A 100% subscription generally means that the demand was just satisfied and the issue would either open at the sale price of 19.00 or slightly higher.

What if there was no oversubscription and issue was only 50% subscribed? In that case should the issue have opened at less than 19?

YES!