What is IPO Allotment Process?
If you follow the share market closely, you must have heard of the term “Initial Public Offering” or IPO. When a company decides to go public, it floats its IPO, and this entire process of floating an IPO is a long and complex one.
It starts with the company filing a Draft Red Herring Prospectus (DRHP) with India’s Securities and Exchange Board (SEBI) and ends with its shares being listed on the stock exchanges. In between, it involves the process of book building, bidding, and the allotment of shares to the investors.
All You Need to Know About the IPO Allotment Process
As a share market investor, you might have applied for an IPO in the past. In fact, many investors apply for IPOs to make listing gains or acquire long-term shares at the lowest prices. However, it’s not compulsory that if you’ve applied for an IPO, you will get the allotment. In the case of IPOs, share allotment is done as per the SEBI norms.
Continue reading to know about the entire IPO allotment process in detail.
What is the IPO allotment process?
The IPO allotment process consists of three steps – Bidding, Allotment, and Transfer. After a company opens its IPO for the general public, the interested investors must bid for the allotment of shares within a specified price band. This bidding can be done through an online or offline process.
To place a bid, an investor needs to have the following two things:
- A Demat account through which they can buy and sell shares
- A savings bank account linked to their Demat account
After an investor places a bid for the allotment of the IPO shares, the required amount gets blocked in their bank account.
After the completion of the bidding process, the issuer company decides on a cut-off price or issue price for its shares. Then, the investors who have placed their bids at a price that is equal to or greater than this cut-off price are allotted the shares in their Demat account. However, it may happen that even after placing the bid at the cut-off price, an investor may not get the allotment of shares.
Investors can check their IPO allotment status by visiting the website of the IPO registrar. They can also visit the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE) website for an IPO allotment status check online.
How Does a Company Decide on the Allotment of IPO?
After the completion of the bidding process, the company eliminates all incorrect or unsuccessful bids to know the final figure of successful bids for its IPO. The company may fall into one of the two situations mentioned below:
1. The number of successful bids is less than or equal to the shares offered by the company
In this case, the IPO is said to be undersubscribed. Here, every investor who has applied for the IPO is allotted the shares.
2. The number of successful bids is more than the shares offered by the company
In this case, the IPO is said to be oversubscribed, and the allotment of shares requires a lot more planning. As per the SEBI rules, the company must try to allot at least one lot to every investor who has applied for the IPO. So, the company decides the allotment as per the margin by which its IPO is oversubscribed.
- If the IPO is oversubscribed by a small margin, a minimum of one lot is distributed among all investors and then, the remaining shares are allocated proportionately to the investors who had applied for more than one lots.
- In case an IPO is oversubscribed by a large margin, the company allocated at least one lot to as many investors through a computerised lucky draw. If an investor fails to make it to the draw, they won’t get the allotment.
Now that you know the IPO allotment process, you can go ahead and apply for the IPOs of your favourite companies. However, before taking any decision, it’s prudent that you check a company’s fundamentals and financial records rather than going with the hype created around it. So be diligent and wise while subscribing to an IPO.
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Frequently Asked Questions
No. The IPO allotment completely depends on the number of successful bids placed by the investors. In the case of an oversubscribed IPO, the allotment of shares is done through a computerised lottery. So, it does not matter when you applied for the IPO.
To increase your chances of IPO allotment, make sure that you place your bid correctly. It’s better to bid for the highest possible price. Additionally, you can place bids from multiple Demat accounts that can be of your friends or family members.
To check your IPO allotment status, you can click on these links:
You can also visit the IPO registrar’s website.