Every investor is fascinated by IPOs and the prospect of being allotted shares during their subscription. In my own experience, I have applied for numerous IPOs, but unfortunately, I haven’t been allotted any shares so far. For instance, when IRCTC went public, it was oversubscribed by a staggering 111 times, and despite my application, I did not receive an allotment. Interestingly, the shares of IRCTC later listed in the market at more than double their final issue price.
Now, let’s delve into the science behind the IPO allotment process today. We will explore what it entails, some of the rules governing allotment, the allotment process itself, and the chances of receiving an IPO allotment.
What is IPO Allotment?
Basically, IPO allotment is the allocation or distribution of shares to the investors in an IPO. The allocation is determined by the Registrar in consultation with the Exchange. It purely depends on the demand for IPO shares. If the IPO is oversubscribed (received more bids than the shares offered), not all investors may receive an allocation. If the IPO is not fully subscribed, all investors will receive allotment.
The IPO allotment depends on the number of shares offered and the bids received from investors in the investor category (i.e., Retail, NII, QIB). The rules for IPO allotment vary by investor category (i.e., Retail, NII, QIB).
Only the applications received at or above the cut-off price are considered for allocation.
An under-subscription in one category (other than the QIB category) may be offset with an oversubscription from another category in consultation with the Lead Manager, the Registrar, the Exchange, and the issuer. Unsubscribed shares in the QIB category are not available for subscription in other categories.
The registrar prepares and publishes the basis of the Allotment document that provides details about the allotment.
The allotment mechanism depends on the investor category and the subscription levels. For example,
In case of undersubscription across each investor category, all valid applications will receive full allotment. Furthermore, the IPO must receive 90% of the subscription to succeed.
If the IPO is over-subscribed for one category and under-subscribed for another, the oversubscription may be adjusted with the under-subscribed portion of the other category, except for QIB.
In case of oversubscription, the issuer will allocate shares based on a lottery system or proportionately based on the investor category.
There is no specific formula or calculator that can guarantee investors an allotment in an IPO since the allotment process depends on factors like the level of subscription and the investor category.
In most cases, especially when IPOs are oversubscribed, allotment is determined through a lottery system, resulting in equal chances for all applicants. While there is no foolproof method for securing an IPO allotment, investors can adopt some best practices to improve their chances:
In the Retail category, consider applying for 1 lot of shares from multiple family accounts. Avoid applying at the last minute and try to submit your application before the afternoon session on the closing day of the IPO.
Also, to ensure all application information is filled out accurately. Meet the UPI mandate approval deadline.
Review the Basis of Allotment document to verify your eligibility for allotment. If you believe you should have received IPO shares but haven’t, contact the Registrar for clarification.
Furthermore, study past basis of Allotment documents to gain insights into the allocation process.
While these practices may enhance your chances, it’s essential to remember that IPO allotment remains subject to demand, and there are no guarantees of receiving shares.