IPO Allotment Process

 

IPO Allotment Process

An initial public offering, also known as an IPO, is a procedure whereby a privately owned company makes its shares available for purchase by the general public.This application is made accessible online and at specific banks for bidders to fill out. If you've ever applied for shares in an IPO, you've probably noticed that many times you weren't given any. Perhaps your close friend received some shares in the same IPO application. So, why does this happen, and how are IPO shares allocated to applicants? Let's examine the causes of zero allotments and a detailed understanding of the Initial Public Offering allotment procedure.

IPO Shares Allotment Procedure

First come, first served is not the foundation for IPO allocation in India. The way investors responded to the IPO will have a major impact on the allotment procedure. Investors may receive all the lots for which they have applied if the IPO is undersubscribed. If the IPO is oversubscribed, an automated procedure is used to distribute shares to retail investors.

 After an organization launches an IPO to the general public, all bids for the shares are registered online. All erroneous bids that were filed wrongly are then removed from the total number of bids using an online procedure. With this, you now know the precise number of winning bids for the aforementioned IPO.

The allotment of IPO shares depends on how the investors have shown their interest in it. There are different cases that affect the IPO allotment process: There are two cases amongst which the condition of a company may fall in, they are:

1. The total number of successful bids is lower than or equal to the number of shares that the company is offering (Undersubscription)

2. The total number of successful bids exceeds the number of shares that the company is offering (Oversubscription)

Case 1: Undersubscription

In case the total no. of bid lots, by all the applicants combined is less than the total no. of lots offered then everyone gets the allocation of the same number of lots that they had bid for. Thus, every applicant who has applied will be assigned shares.

Case 2: Oversubscription

The other case is when the total no. of bid lots by the applicants is more than the offered, then SEBI rules are taken into consideration, according to which no individual can be allotted more than 1 lot. 

Let’s understand case 2 with an example:

Assume that there are 10 lakh shares offered to the investors and the minimum lot size is 50. Then the maximum number of investors who will get at least one lot is = 10 lakh/50 = 20,000

Thus, 20,000 investors will be allotted at least one lot.

For the allotment procedure for case 2, there are two scenarios:

1. Small oversubscription

All applicants will receive the minimum lot, and any investors who placed bids for more than one lot will receive a proportionate part of the remaining shares.

2. Large oversubscription

When there is such an oversubscription that even one lot cannot be distributed to each applicant, allocation is done by lottery draw. Without showing any bias, a computer system will conduct this lottery draw. As a result, during periods of significant oversubscription, not all names are picked in the random draw and not all applicants are given shares.

Reason for No Allotment of Shares

There are two reasons why no shares were allotted to you, which are:

1. Your IPO offer was rejected because it contained an invalid Demat account number, an invalid PAN number, or duplicate applications.

2. If there was a significant oversubscription, your name was not chosen in the lucky draw.

If you are a retail investor, the only way to improve your chances of receiving an IPO allocation is to apply for shares through numerous Demat accounts, such as those of friends or relatives. Multiple Demat accounts cannot be used to apply for shares in your own name.