IPO Share Allotment Process is not understood by many and mostly the retail investor fail to use the most out of their funds without the knowledge of this process.
Initial Public Offer or Popularly called as IPO is a Primary market investment that involves buying shares of a private company that is issuing the shares for the first time and is looking to get listed in the stock exchanges. Now this IPO process involves several steps like IPO approval by the regulatory, IPO dates announcement, IPO subscription process and IPO allotment process.
In this article, we focus and discuss the IPO share Allotment process and how This process is different for Retail Investor and another type of investors like Qualified Institutional buyers and Non Institutional investors.
Initial Public Offering(IPO) give good returns to the investors and most of the times the retails investor who is subscribing to the IPO wanted to make use of the Listing day gains and exit from the stock. You can refer to the IPO performance over the years to understand how different IPO’s have performed and gave returns to the investors.
Many a times the retail investor thought subscribing to all the IPO’s failed to get any allotment because these IPO’s are oversubscribed. In such case it is important to understand how the IPO share allotment process works and how can you make use of this process.
When an IPO is announced, it includes details such as the details of the Price band (The lower and upper price band), the quantity per lot, and the timeline of the IPO process. In this timeline, the dates for the issue allowed for subscription, the date of allotment of shares and the date of listing on the stock exchanges are clearly mentioned. The IPO share allotment process works on the date mentioned in this timeline.
Allotment process is different for different types of investors. The below are the types of Investors who can invest in the IPO of any company
Qualified Institutional Buyers
Employees (only in few IPO’s)
Each company allows a certain number of shares to each category and those shares are to be allotted to that category of investors. Most of the times the shares allotted for QIB’s will be around 35%, for Retail around 15-20% and for NII around 45%. This is just a general allotment and the actual allowed per each category differs from company to company and these are mentioned in the Company IPO document.
During IPO Share allotment process the most important things that are taken into account are
Retail investors are those individual investors who invest less than 2 lakh rupees. The allotment for these individual investors depends on if the IPO is undersubscribed or the IPO is oversubscribed.
When the IPO is undersubscribed, it means that the demand is less compared to the supply of the total number of shares allotted for retail investors category. In such a case, the Investors are allotted the full number of lots of shares they have subscribed for. Like if the investor subscribes for 2 lots, then he will be allotted two lots of shares as there is enough supply of shares when compared to the demand for the shares.
When the IPO is Oversubscribed, it means that the demand for the shares is more than the number of shares that are available. In this case also we have two different scenarios.
The Number of Retail investors is less than or equal to the number Lots of shares allotted for retail category. In this case, as the number of investors is less than or equal to the total number of lots of shares allotted for the retail category, then each Investor is allotted one lot for sure and if any share is extra then those are allotted to the remaining investors on a lottery basis to the investors who subscribed for more than 1 lot of shares.
And if the number of Investors is more than the total number of lots of shares allotted for retail category. In this case, all the lots of shares for the retail investors are allotted on the basis of a lottery with a maximum of 1 lot to each investor.
2.Non-Institutional Investors IPO allotment
Non-Institutional Investors are also called as High Net-worth Individual investors. These are the individuals who invest more than 2 lakh rupees. The IPO Share allotment process for these also depends on if the IPO is oversubscribed or Unsubscribed.
If the IPO is undersubscribed, then the NII’s will get the number of shares they have applied for as there are enough supply of shares than the demand.
In case of Over subscription the number of shares that are allotted Proportionately. For example if the NII applied for 20 crore shares and if the IPO is oversubscribed 5 times. Then the number of shares allotted to the NII will be 4 crore shares.
3.Qualified Institutional Buyers
QIBs are those merchant banks which are subscribing to the IPO of the company. IPO Share allotment process for QIBs is somewhat similar to the process of allotment for NII’s.
In case of under subscription the QIBs will get the number of shares they have applied for. But in case of Over subscription the umber of shares are allotted proportionately.
Bottom Line – IPO Share Allotment Process
IPO share allotment process as explained above is different for different category of investors. If you are retail investors, in case of oversubscription then try to use a maximum number of DEMAT account to apply rather than applying for the Bulk quantity from one single DEMAT account. This is because as we have seen in the IPO share allotment process, the maximum the individual get in case of Oversubscription is 1 lot. And also it will on basis of Lotter. Hence applying from multiple accounts increases the chance of getting the allotment.