Initial Public Offerings (IPOs) have become a popular investment avenue for both retail and institutional investors in India. Companies go public to raise capital, offering investors the opportunity to purchase shares at an early stage before they get listed on stock exchanges. However, getting an IPO allotment is not always guaranteed, as demand often exceeds the number of shares available.
Understanding the
IPO allotment process is crucial for investors looking to participate in a public offering. Factors such as IPO eligibility, subscription status, and different categories of investors play a key role in determining who gets allotted shares. This article breaks down the IPO allotment process in detail and provides insights on how investors can improve their chances of getting an allotment.
What is the IPO allotment process?
The IPO allotment process is the method through which a company’s shares are distributed among investors who apply for an IPO. When an investor applies for an IPO, they are essentially bidding for a certain number of shares at a specified price. Once the IPO subscription period ends, the company and its underwriters decide how to allocate shares based on demand.
The allotment process varies depending on investor categories, including retail investors, qualified institutional buyers (QIBs), and non-institutional investors (NIIs). If an IPO is oversubscribed, shares are allotted through a lottery system in the retail category, while institutional investors receive allotment based on a proportionate basis.
Factors affecting IPO allotment
IPO eligibility criteria
IPO eligibility refers to the criteria investors must meet to participate in an IPO. Retail investors, high-net-worth individuals (HNIs), and institutional investors must comply with regulatory guidelines set by the Securities and Exchange Board of India (SEBI). A valid Demat account, PAN card, and sufficient funds in the bank account are required to apply for an IPO.
Subscription demand
If an IPO receives high demand and is oversubscribed, the allotment process follows specific rules. Retail investors may receive fewer shares than they applied for, or their application may be rejected if demand significantly exceeds supply. Understanding subscription demand helps investors assess the likelihood of getting shares.
Reservation for different investor categories
IPOs allocate shares to different categories of investors in predetermined proportions. Retail investors typically get up to 35% of the total issue size, while QIBs and NIIs receive larger allocations. Some IPOs also have reserved quotas for employees and existing shareholders.
Issue price and lot size
The company determines the issue price based on investor demand during the IPO book-building process. Investors must apply for shares in specific lot sizes, which are fixed by the company. If the application amount does not match the specified lot size, it may be rejected.
Refunds for unsuccessful applicants
If investors do not receive an allotment due to oversubscription, their application money is refunded. Refunds are processed through the ASBA (Application Supported by Blocked Amount) system, which ensures that funds remain in the investor’s bank account until allotment is confirmed.
Step-by-step IPO allotment process
1. Submitting an IPO application
Investors apply for an IPO through their broker, bank, or online platforms like UPI-based applications. They select the number of shares and bid price within the specified range. The ASBA mechanism ensures that the application amount remains blocked until the allotment process is completed.
2. IPO subscription period closes
Once the
IPO subscription period ends, the registrar compiles all applications and categorises them based on investor types. Subscription data is made available, showing how much demand the IPO has received.
3. Basis of allotment is determined
The IPO registrar, in coordination with stock exchanges and underwriters, determines the allotment structure. If the IPO is oversubscribed, retail investors may receive shares through a lottery system. Institutional investors receive allotment based on their bid price and demand.
4. Allotment results are published
Investors can check the IPO allotment status on the registrar’s website by entering their PAN or application number. The results indicate whether they have received full, partial, or no allotment of shares.
5. Shares are credited to Demat accounts
Successful applicants receive shares directly in their Demat accounts before the listing date. Investors who do not receive allotment get their blocked funds unblocked or refunded automatically.
6. Listing on stock exchanges
After allotment, the company’s shares are listed on stock exchanges, and investors can start trading them. Share prices may fluctuate depending on market demand, opening at a premium or discount to the issue price.
How to improve IPO allotment chances?
Apply at the cut-off price
Retail investors should select the cut-off price while applying for an IPO. This increases the chances of getting shares as it indicates willingness to accept the final price decided by the company.
Use multiple Demat accounts
Applying through multiple Demat accounts linked to different family members can increase the probability of allotment. However, duplicate applications from the same PAN will be rejected.
Choose the right IPOs
Investors should research IPO fundamentals, subscription demand, and financial performance before applying. Well-rated IPOs with strong company backgrounds are more likely to generate good returns.
Avoid large applications in retail category
Retail investors should apply for the minimum lot size rather than large applications. In oversubscribed IPOs, the lottery system favours those applying for fewer lots.
Check for reserved quotas
Some IPOs have reserved quotas for employees and shareholders of the company. Investors who qualify under these categories may have higher chances of getting an allotment.
Conclusion
The IPO allotment process is a crucial step that determines how shares are distributed among investors. While applying for an IPO does not guarantee allotment, understanding IPO eligibility and following strategic steps can improve the chances of receiving shares. As more companies go public, investors should stay informed about IPO trends and apply for quality offerings with strong fundamentals.
For those looking to invest in IPOs, thorough research, timely applications, and strategic bidding can enhance the likelihood of getting an allotment. As the Indian stock market continues to grow, IPOs remain an exciting opportunity for investors seeking wealth creation and portfolio diversification.
