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Abridged Prospectus

Abridged Prospectus means the memorandum as prescribed in Form 2A under sub-section (3) of section 56 of the Companies Act, 1956. It contains all the salient features of a prospectus. It accompanies the application form of public issues.


In case of book built issues, the basis of allotment is finalized by the Book Running lead Managers within 2 weeks from the date of closure of the issue.  


Trading in the IPO subsequent to its offering is called the aftermarket. Trading volume in IPOs is extremely high on the first day due to aftermarket purchases. Trading volume can decline subsequently in the following days.  

Aftermarket Performance

The price appreciation (or depreciation) in IPOs is measured from the offering price going forward. However, to obtain a better benchmark of IPO aftermarket performance, some investors track performance from the first day close.


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Bankers to the Issue  

Bankers to the issue, as the name suggests, carries out all the activities of ensuring that the funds are collected and transferred to the Escrow accounts. The Lead Merchant Banker shall ensure that Bankers to the Issue are appointed in all the mandatory collection centers as specified in DIP (Disclosure and Investment Protection) Guidelines 2000. The LM also ensures follow-up with bankers to the issue to get quick estimates of collection and advising the issuer about closure of the issue, based on the correct figures.  

Basis of Allocation/Basis of Allotment  

After the closures of the issue, the bids received are aggregated under different categories i.e., firm allotment, Qualified Institutional Buyers (QIBs), Non-Institutional Buyers (NIBs), Retail, etc. The over subscription ratios are then calculated for each of the categories as against the shares reserved for each of the categories in the offer document. Within each of these categories, the bids are then segregated into different buckets based on the number of shares applied for. The over subscription ratio is then applied to the number of shares applied for and the number of shares to be allotted for applicants in each of the buckets is determined. Then, the number of successful allottees is determined. This process is followed in case of proportionate allotment. In case of allotment for QIBs, it is subject to the discretion of the post issue lead manager.  

Board of Directors

The composition of the Board of Directors is particularly critical for an IPO. Typically, a board is composed of Directors who are also shareholders and independent directors. Independent directors have no underlying financial or personal relationship with the company that could create a conflict of interest and are on the board for their experience, business judgment and contacts. Independent directors may own the shares of the company but are not large shareholders. Investors should look for a board that has at least two independent directors. Typically, IPOs add their first outside directors at or immediately after the offering.

Book Building

Book building is a process of price discovery. Hence, the Red Herring prospectus does not contain a price. Instead, the red herring prospectus contains either the floor price of the securities offered through it or a price band along with the range within which the bids can move. The applicants bid for the shares quoting the price and the quantity that they would like to bid at. Only the retail investors have the option of bidding at ‘cut-off’. After the bidding process is complete, the ‘cut-off’ price is arrived at on the lines of Dutch auction. The basis of allotment is then finalized and letters allotment/refund is undertaken. The final prospectus with all the details including the final issue price and the issue size is filed with ROC, thus completing the issue process  

Book Running Lead Manager (BRLM)

In the pre-issue process, the Lead Manager (LM) takes up the due diligence of company’s operations/ management/ business plans/ legal etc. Other activities of the LM include drafting and design of Offer documents, prospectus, statutory advertisements and memorandum containing salient features of the prospectus. The BRLMs shall ensure compliance with stipulated requirements and completion of prescribed formalities with the Stock Exchanges, RoC and SEBI including finalization Prospectus and RoC filing. Appointment of other intermediaries viz., Registrar(s), Printers, Advertising Agency and Bankers to the Offer is also included in the pre-issue processes. The LM also draws up the various marketing strategies for the issue The post issue activities including management of escrow accounts, coordinate non-institutional allocation, intimation of allocation and dispatch of refunds to bidders etc are performed by the LM. The post Offer activities for the Offer will involve essential follow-up steps, which include the finalization of trading and dealing of instruments and dispatch of certificates and demat of delivery of shares, with the various agencies connected with the work such as the Registrar(s) to the Offer and Bankers to the Offer and the bank handling refund business. The merchant banker shall be responsible for ensuring that these agencies fulfill their functions and enable it to discharge this responsibility through suitable agreements with the Company.  

Bought Out Deal  

An underwriter has a commitment to buy all the shares, from a company and becomes financially responsible for selling them. Also called firm allotment.


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This refers to upcoming IPOs and secondary offerings.  

Clearing Price

The price at which all shares of an IPO can be sold to investors in a Dutch Auction. Sometimes referred to as the “market-clearing price”.

Closed Book

 Under closed book building, the book is not made public and the bidders will have to take a call on the price at which they intend to make a bid without having any information on the bids submitted by other bidders.


Most initial public offerings and secondary offerings have more than one underwriter. The manager controlling the offering is called the lead manager. Other underwriters are co-managers. The names of these underwriters appear on the bottom of the front page of the prospectus, with the most important manager appearing on the top left, and the co-managers arrayed from left to right in order of importance.

Confirmatory Allotment Note (CAN)  

CAN is a document received by the investor from the Book Running Lead Manager in case he has been allotted shares within 15 days from the date of closure of a book Built issue. The registrar has to ensure that the demat credit or refund as applicable is completed within 15 days of the closure of the book built issue.  

Cover Page  

The Cover Page of the offer document covers full contact details of the Issuer Company, lead managers and registrars, the nature, number, price and amount of instruments offered and issue size, and the particulars regarding listing. Other details such as Credit Rating, risks in relation to the first issue, etc are disclosed if applicable.  

Cut off Price

In Book building issue, the issuer is required to indicate either the price band or a floor price in the red herring prospectus. The actual discovered issue price can be any price in the price band  

or any price above the floor price. This issue price is called “Cut off price”. This is decided by the issuer and LM after considering the book and investors’ appetite for the stock. SEBI (DIP) guidelines permit only retail individual investors to have an option of applying at cut off price.  


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Differential pricing

Pricing of an issue where one category is offered shares at a price different from the other category is called differential pricing. In DIP Guidelines differential pricing is allowed only if the securities to applicants in the firm allotment category is at a price higher than the price at which the net offer to the public is made . The net offer to the public means the offer made to the Indian public and does not include firm allotments or reservations or promoters’ contributions.  

Draft Offer document

"Draft Offer document" means the offer document in draft stage. The draft offer documents are filed with SEBI, at least 21 days prior to the filing of the offer document with ROC/ SEs. SEBI may specifies changes, if any, in the draft offer document and the issuer or the Lead Merchant banker shall carry out such changes in the draft offer document before filing the offer document with ROC/SEs. The draft offer document is available on the SEBI website for public comments for a period of 21 days from the filing of the draft offer document with SEBI.  

Direct Public Offer

This is an offering in which a company sell its shares directly to the public without the help of the underwriter. Liquidity of this offering is very limited.  


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A company proposing to issue capital to public through the on-line system of the stock exchange for offer of securities can do so if it complies with the requirements under Chapter 11A of DIP Guidelines. The appointment of various intermediaries by the issuer includes a prerequisite that such members/registrars have the required facilities to accommodate such an online issue process.

Expected Date

Expected offering date of issue in registration. This date comes directly from the syndicate desk at the underwriter firm


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 When an investor buys an IPO at the offering price and then sells the stock soon after it starts trading on the open market. The underwriters try to discharge flipping by initialing placing stock in the hands of long term investors particularly once that have promised aftermarket orders.

First Day Close

The closing price at the end of the first day of trading reflects not only how well the lead manager priced and placed the deal, but what the near-term trading is likely to be. For example, IPOs that shoot up 100% or 200% on their first day of trading are likely to fall back in price on subsequent days due to profit taking. Conversely, IPOs that break offer price immediately are likely to drop further as institutions bail out. Breaking IPO price right out of the box is a poor reflection on the lead manager's pricing and placement.

Fixed Price offers

An issuer company is allowed to freely price the issue. The basis of issue price is disclosed in the offer document where the issuer discloses in detail about the qualitative and quantitative factors justifying the issue price. The issuer company can mention a price band of 20% (cap in the price band should not be more than 20% of the floor price) in the Draft offer documents filed with SEBI and actual price can be determined at a later date before filing of the final offer document with SEBI / ROCs.


When a company is publicly traded, a distinction is made between the total number of shares outstanding and the number of shares in circulation, referred to as the float. The float consists of the company's shares held by the general public. For example, if a company offers 2 million shares to the public in an IPO and has 20 million shares outstanding, its float is  2 million shares.

Follow on public offering (FPO)

FPO is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations.


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Green-shoe Option

A Green Shoe option means an option of allocating shares in excess of the shares included in the public issue and operating a post-listing price stabilizing mechanism for a period not exceeding 30 days in accordance with the provisions of Chapter VIIIA of DIP Guidelines, which is granted to a company to be exercised through a Stabilizing Agent. This is an arrangement wherein the issue would be over allotted to the extent of a maximum of 15% of the issue size. From an investor’s perspective, an issue with green shoe option provides more probability of getting shares and also that post-listing price may show relatively more stability as compared to market.


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Hard underwriting

Hard underwriting is when an underwriter agrees to buy his commitment at its earliest stage. The underwriter guarantees a fixed amount to the issuer from the issue. Thus, in case the shares are not subscribed by investors, the issue is devolved on underwriters and they have to bring in the amount by subscribing to the shares. The underwriter bears a risk which is much higher in soft underwriting.


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Issue Price

Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines have provided that the issuer in consultation with Merchant Bankers shall decide the price. There is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The company and merchant banker are however required to give full disclosures of the parameters, which they had considered while deciding the issue price. There are two types of issues one where company and LM fix a price (called fixed price) and other, where the company and LM stipulate a floor price or a price band and leave it to market forces to determine the final price (price discovery through book building process).


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Lock-in indicates a freeze on the shares. SEBI (DIP) Guidelines have stipulated Lock-in requirements on shares of promoters mainly to ensure that the promoters, who control the company, shall continue to hold some minimum percentage in the company after the public issue. The requirements are detailed in Chapter IV of DIP guidelines.


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Market Capitalization

The total market value of a firm. It is defined as the product of the company's stock price per share and the total number of shares outstanding. The market cap should not be confused with the float, which is the amount of shares in circulation. A company's market cap can greatly exceed the float, especially in the case of a new publicly traded company.

Market Value

The market value of a company is determined by multiplying the number of shares outstanding by the current price of the stock.


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Offer Date

Offer date of the issue is the first day the issue is traded publicly

Offer document

Offer document means Prospectus in case of a public issue or offer for sale and Letter of offer in case of a rights issue, which is filed with the Registrar of Companies (ROC) and Stock Exchanges. An offer document covers all the relevant information to help an investor to make his/her investment decision.

Offering Price

This is the price at which the IPO is first sold to the public. It is set by the lead manager, usually after the close of stock market trading the night before the shares are distributed to IPO buyers. In the case of some foreign IPOs, the pricing occurs over the weekend.

Online Bidding

An investor may place his bids through online terminals offered by some of the brokers. A company proposing to issue capital to public through the on-line system of the stock exchange for offer of securities can do so if it complies with the requirements under Chapter 11A of DIP Guidelines. The appointment of various intermediaries by the issuer includes a prerequisite that such members/registrars have the required facilities to accommodate such an online issue process.

Open book

 Presently, in issues made through book building, Issuers and merchant bankers are required to ensure online display of the demand and bids during the bidding period. This is the Open book system of book building. Here, the investor can be guided by the movements of the bids during the period in which the bid is kept open.

Order Book

When the underwriter refers to how well orders are building for an IPO or a secondary deal, he means the book or listing of buy orders from investors. The book for a deal can be many times oversubscribed. In fact, an oversubscribed deal is desired by both underwriters and investors, because it means that there will be an initial pop in the stock when it begins trading and subsequent aftermarket orders.

Over allotment

This is the fancy name for the green shoe, the underwriting agreement which allows the underwriters to buy up to an additional 15% of shares at the offering prices for a period of several weeks after the offering.


When an Initial Public Offering has more orders than there are shares available it is said to be oversubscribed. Many underwriters like to see a book several times oversubscribed because they know that investors inflate the size of their indications of interest. When a book is grossly oversubscribed it is said to be a hot deal.


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Price Band

The red herring prospectus may contain either the floor price for the securities or a price band within which the investors can bid. The spread between the floor and the cap of the price band shall not be more than 20%. In other words, it means that the Cap should not be more than 120% of the floor price. The price band can have are vision and such a revision in the price band shall be widely disseminated by informing the stock exchanges, by issuing press release and also indicating the change on the relevant website and the terminals of the syndicate members. In case the priceband is revised, the bidding period shall be extended for a further period of three days, subject to the total bidding period not exceeding thirteen days.

Price discovery

The role of these entities is important. Both the lead managers and underwriters have the implicit responsibility of raking up enough investment for the issue. The first has its income attached to the applications and second bears the market risk failing which it has to cough up the amount which it may not recover in case of a below average market response as this is the factor that decides the scrip's performance in secondary market. Therefore, both play an important role in the price determination of the issue. The issuing company obviously wants to raise as much money as possible by selling as less number of securities possible. This is definitely in the interest of shareholders of the company as the dilution of equity is tried to be kept at minimum. Some of the general aspects by which the issuing company decides the price are the company image, project's strengths, business prospects and the incremental cash flows that are expected to accrue as a result of the project. But the lead managers and underwriters vet the price judging by the general market sentiment at that point of time. This basic interlocution of different opinion is what leads ultimately to price discovery for the issue.


Companies go public to raise money. The money raised is referred to as proceeds. In every prospectus there is a section entitled "Use of proceeds". Investors should read this section to find out why the company plans to raise money from the public.  


The promoter has been defined as a person or persons who are in over-all control of the company, who are instrumental in the formulation of a plan or programme pursuant to which the securities are offered to the public and those named in the prospectus as promoters(s). It may be noted that a director / officer of the issuer company or person, if they are acting as such merely in their professional capacity are not be included in the definition of a promoter.  

Promoter Group

Promoter group includes the promoter, an immediate relative of the promoter (i.e. any spouse of that person, or any parent, brother, sister or child of the person or of the spouse). In case promoter is a company, a subsidiary or holding company of that company; any company in which the promoter holds 10% or more of the equity capital or which holds 10% or more of the equity capital of the Promoter; any company in which a group of individuals or companies or combinations thereof who hold 20% or more of the equity capital in that company also holds 20% or more of the equity capital of the issuer company. Incase the promoter is an individual, any company in which 10% or more of the share capital is held by the promoter or an immediate relative of the promoter' or firm or HUF in which the 'Promoter' or any one or more of his immediate relative is a member; any company in which a company specified in (i) above, holds 10% or more, of the share capital; any HUF or firm in which the aggregate share of the promoter and his immediate relatives is equal to or more than 10%of the total, and all persons whose shareholding is aggregated for the purpose of disclosing in the prospectus "shareholding of the promoter group"  

Private Placement

The allotment of an issue is below 50 persons is called Private Placement.  


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Qualified Institutional Buyer (QIBs)  

Qualified Institutional Buyers are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets.  

In terms of clause 2.2.2B (v) of DIP Guidelines, a ‘Qualified Institutional

Buyer’ shall mean:  

     a.  Public financial institution as defined in section 4A of the Companies Act, 1956;

     b.  Scheduled commercial banks;

     c.  Mutual funds;

     d.  Foreign institutional investor registered with SEBI;

     e.  Multilateral and bilateral development financial institutions;

     f.   Venture capital funds registered with SEBI.

     g.  Foreign Venture capital investors registered with SEBI.

     h.  State Industrial Development Corporations.

     i.   Insurance Companies registered with the Insurance Regulatory and Development Authority (IRDA).

     j.   Provident Funds with minimum corpus of Rs.25 crores

     k.  Pension Funds with minimum corpus of Rs. 25 crores)

These entities are not required to be registered with SEBI as QIBs. Any entities falling under the categories specified above are considered as  QIBs for the purpose of participating in primary issuance process.


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Red Herring Prospectus

Red Herring Prospectus is a prospectus which does not have details of either price or number of shares being offered or the amount of issue. This means that in case price is not disclosed, the number of shares and the upper and lower price bands are disclosed. On the other hand, an issuer can state the issue size and the number of shares are determined later. An RHP for an FPO can be filed with the RoC without the price band and the issuer, in such a case will notify the floor price or a price band by way of an advertisement one day prior to the opening of the issue. In the case of book-built issues, it is a process of price discovery and the price cannot be determined until the bidding process is completed. Hence, such details are not shown in the Red Herring prospectus filed with ROC in terms of the provisions of the Companies Act. Only on completion of the bidding process, the details of the final price are included in the offer document. The offer document filed thereafter with ROC is called a prospectus.  


The Registrar finalizes the list of eligible allottees after deleting the invalid applications and ensures that the corporate action for crediting of shares to the demat accounts of the applicants is done and the dispatch of refund orders to those applicable are sent. The Lead manager coordinates with the Registrar to ensure follow up so that that the flow of applications from collecting bank branches, processing of the applications and other matters till the basis of allotment is finalized, dispatch security certificates and refund orders completed and securities listed.  

Retail Individual Investor

Retail individual investor’ means an investor who applies or bids for securities of or for a value of not more than Rs.1, 00,000.  

Risk Factors

The disclosure of the issuer’s management to give its view on the Internal and external risks faced by the company. Here, the company also makes a note on the forward-looking statements. This information is disclosed in the initial pages of the document and it is also clearly disclosed in the abridged prospectus. It is generally advised that the investors should go through all the risk factors of the company before making an investment decision.


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Safety Net

Any safety net scheme or buy-back arrangements of the shares proposed in any public issue shall be finalized by an issuer company with the lead merchant banker in advance and disclosed in the prospectus. Such buyback or safety net arrangements shall be made available only to all original resident individual allottees limited up to a maximum of 1000 shares per allottee and the offer is kept open for a period of 6 months from the last date of dispatch of securities. The details regarding safety Net are covered under Clause 8.18 of DIP Guidelines.  

Soft underwriting

Soft underwriting is when an underwriter agrees to buy the shares at later stages as soon as the pricing process is complete. He then, immediately places those shares with institutional players. The risk faced by the underwriter as such is reduced to a small window of time. Also, the soft underwriter has the option to invoke a force Majeure (acts of God) clause in case there are certain factors beyond the control that can affect the underwriter’s ability to place the shares with the buyers.

Syndicate Member

The Book Runner(s) may appoint those intermediaries who are registered with the Board and who are permitted to carry on activity as an ‘Underwriter’ as syndicate members. The syndicate members are mainly appointed to collect and entire the bid forms in a book built issue.


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This is a brokerage firm that raises money for companies using public equity and debt markets. Underwriters are financial intermediaries that buy stock or bonds from an issuer and then sell these securities to the public.


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Valuation Multiple

An approach to valuing companies that relies on comparing a company’s stock price to its income from operations, cash flow from operations, or earnings per share. The higher the multiple, the more richly valued the company is. Underwriters use valuation multiples of an IPO’s peers, or comparables, to determine the appropriate level at which the IPO should be priced.

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