IPO watch: Key measure that may help you figure in IPO allotment status if the issue is oversubscribed

The IPO Allotment Process: How Shares are Allocated

The IPO allotment process refers to the way a company distributes its shares to investors once the subscription period has concluded. This process is overseen by the registrar, which reviews valid bids that meet the eligibility criteria and the cut-off price.

What Happens When an IPO is Undersubscribed?

• All applicants receive the shares they requested
• Shares are allocated to successful applicants, who will have them deposited into their demat accounts
• Those who did not receive shares will be issued refunds

How Does IPO Allotment Work if the Issue is Oversubscribed?

An IPO is considered oversubscribed when the number of applications exceeds the available shares for distribution. In such cases, the registrar performs a lottery to distribute shares among the applicants.

Understanding the IPO Allotment Process: An Example

Arun Kejriwal, founder of Kejriwal Research and Investment Services, explains that investors in an IPO fall into three categories: retail, High Net-Worth Individual (HNI), and Qualified Institutional Buyer (QIB).

• QIB: If an offering is subscribed to ten times, you will receive one-tenth of your application amount in proportion to the demand.
• HNI (Big): A maximum of two lakhs per person will be allocated, with a lottery system used if the issue is oversubscribed beyond a certain point.
• HNI (Small): A minimum of two lakhs will be allocated, with a lottery system used if the issue is oversubscribed.
• Retail: A minimum of 15,000 will be allocated, with any additional allocation determined by lottery if the issue is oversubscribed.

How IPO Shares are Allocated

The distribution of shares occurs based on the regulations established by the Securities and Exchange Board of India (SEBI). When a firm declares its IPO, the total equity shares available are split into lots, with each lot containing an equal number of shares, and each application by retail investors is made in multiples of these lots.

For example, if a company plans to issue 100,000 shares in an IPO and has established a lot size of 10 shares per lot, the total number of lots available would be calculated as (Total number of shares / Number of shares per lot), resulting in 10,000 lots.

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