To keep pace with the globalization and liberalization process, the government of Indiawas very keen to bring the capital market in line with international practices throughgradual deregulation of the economy. It led to liberalization of capital market in thecountry with more expectations from primary market to meet the growing needs for fundsfor investment in trade and industry. Therefore, there was a vital need to strengthen thecapital market which, it felt, could only be achieved through structural modifications,introducing new mechanism and instruments, and by taking steps for safeguarding theinterest of the investors through more disclosures and transparency. As such, an importantmechanism named as Book building in the system of initial public offerings (IPOs) wasrecognized by SEBI in India after having the recommendations of the committee underthe chairmanship of Y. H. Malegam in October, 1995. SEBI guidelines recognized book building as an alternative mechanism of pricing. Under this approach, a portion of theissue is reserved for institutional and corporate investors.SEBI guidelines, 1995 defines book building as “
a process undertaken by which ademand for the securities proposed to be issued by a body corporate is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document
.”Book building process is a common practice used in most developed countries formarketing a public offer of equity shares of a company. However, book building is atransparent and flexible price discovery method of initial public offerings (IPOs) in whichprice of securities is fixed by the issuer company along with the Book Running LeadManager (BRLM) on the basis of feedback received from investors as well as marketintermediaries during a certain period.