Re: Powergrid FPO
Swati, don't mind if I answer your query.
There are 3 types of bidding used commonly. A) floor-price method - where the low price band (85 in case of PWC) is bidded. B) Price bid - Any price between 86 and 90 is price bid since sebi allows to bid in multiples of re 1. and finally C) Cut-off bid - most efficient and should always be used by retaile investors like you and me. To understand about this read further.
A cut-off bid is a sort of promise you make while application that you are paying on higher side of price-band just for security but you'll get shares on "price discovered". Price discovered is a price at which after checking all applications, market situation, company's will to give extra premium to all investors etc. Suppose most application in PGC comes at 85 instead of 90, PGC will made to fix price at 85. In some cases, company on own discrition leave some money on table like Gujarat Pipavav where shares were given rs 2 lower than cut-off just to keep confidence of investors.
Not confusing you any further in simple words, it's a promise to company that I'm ready to take your shares at price you decide. If company decide 85, you get back rs 5. If company decide 90, you get preference over rs 90 price bidders (part B above) because you trusted them for any price. Hence if you bid at cut-off you are rest assured to get some shares and at value decided and chance of rejection or full refund is almost nil.
Therefore it is always advisible to bid at cut-off barring some exceptional cases like of NTPC, NMDC where most people bidded at lower band as there were less applications in retail. Even though those who bidded at cut-off got at lower price-band but it was real lower-band bidders who made price discovered at lower end.