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What is the IPO Allotment Process?

What is the IPO Allotment Process?

When a company announces its IPO, people from various groups apply for shares. After applying, if the shares are successfully credited to their Demat & Trading account, it is known as IPO allotment. This process determines who receives shares in the initial public offering. We will look into the different elements that influence the IPO allotment process.

IPO Allotment Process

Understanding the IPO allotment process is crucial for investors looking to invest in an Initial Public Offering (IPO). Investors often seek insights into the share allocation process due to past experiences where participating in an IPO did not result in any share allocation, leading to a desire for clarification. The IPO allotment process follows guidelines set by the Securities and Exchange Board of India (SEBI) and categorises investors into Qualified Institutional Buyers (QIB), Non-Institutional Investors, and retail investors.

While it's uncertain whether an investor will secure a share allocation, gaining an understanding of how IPO allotment is done can help manage expectations and provide insights into potential reasons for non-allocation.

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Table of Content

  1. IPO Allotment Process
  2. How IPO Shares are Allotted 
  3. IPO Allotment Chances
  4. IPO Allotment Date
  5. Reason for no Allotment of Shares in IPO 

How IPO Shares are Allotted 

Before considering subscribing to an IPO, make sure you have the below:

  1. Demat account (for buying shares)
  2. Trading Account (if selling shares)
  3. Sufficient funds in the Demat account for your bid.

If you have the essentials, follow these steps:

Step 1: Initiate Application

  • Online/offline methods.
  • Ensure your account has enough funds due to the mandatory Blocked amount facility.

Step 2: Allotment

  • Occurs behind closed doors.
  • The outcome varies based on bids and validity.
  • Note: Not all applicants may get what they requested due to high demand.

Step 3: Approval

  • Within 7 days, the IPO registrar confirms allotment.
  • Check the IPO allotment status on the registrar, NSE, or BSE websites.
  • Requires PAN, DPID/Client ID, or bid application number.

Now that we understand how the IPO allotment process works, let us know the chances of getting an IPO allotment. 

IPO Allotment Chances

Here are some strategies below to enhance the chances of getting an IPO allotment

  • Avoid large applications: In the case of oversubscribed IPOs, SEBI treats all retail applications equally. To maximise your chances in the IPO allotment process, opt for minimum bids across multiple accounts, each falling below the Rs 200,000 retail threshold.
  • Bid at the cut-off price or higher: By choosing the cut-off price during the IPO application, you allow the company to determine the final offering price in the IPO allotment process. Additionally, bidding at the highest price band provides flexibility. If the final price is lower, any excess funds are refunded, minimising financial exposure.
  • Avoid last-minute subscriptions: Applying early in the IPO subscription period is crucial. Last-minute applications may encounter issues such as high subscription volumes, potential delays in processing, or technical glitches. Timely submissions enhance the smooth processing of your application.
  • Fill details accurately: Taking the necessary time to fill in IPO forms is essential. Pay close attention to details such as the bid amount, your name, DP ID, and bank information. Opting for the Application Supported by Blocked Amount (ASBA) method through your bank ensures a secure and seamless application, contributing to understanding how IPO allotment is done.
  • Purchase parent or holding company shares: Holding shares of the parent company in your Demat account can qualify you for the Shareholder Category. This becomes particularly advantageous when the parent company is already listed and has a specific reservation for shareholders.

This strategy is relevant when the IPO company's parent is already listed on the stock exchange with a shareholder reservation. Consequently, the chances of allotment significantly improve in the shareholder category.

IPO Allotment Date

During the IPO allotment process date, the distribution of shares among investors occurs through a lottery system, a process closely supervised by the registrar. This method ensures fairness in allocating shares among the participants. On the IPO allotment process date, investors receive information about the number of shares allotted to them with the bids they submitted during the IPO subscription period. 

To check this allotment status, investors have the option to visit the BSE platform or the registrar's official website. This provides investors with transparency and clarity regarding the outcome of their participation in the IPO.

Reason for no Allotment of Shares in IPO 

Investors may not receive an IPO allotment for three main reasons and they are as follows: 

  1. IPO Oversubscription and Internet Lottery:

    When an IPO is oversubscribed, meaning the number of applications exceeds the available shares, a computerised lottery is conducted. In such cases, not all investors will receive an allotment as the demand surpasses the supply.

  2. Invalid Application:

    IPO applications are thoroughly reviewed by the Registrar for completeness and correctness of information. Common reasons for rejection include:

    • Multiple applications use the same PAN number, as each person can submit only one application per PAN.
    • Incorrect or invalid information filled in the application form.
    • Mismatch in the name on the PAN card and the bank account. If the application is deemed invalid, the investor does not receive any allotment.

  3. Bid Price Lower than the Issue Price:

    In a book-building IPO, investors choose a bid price within the specified range. The final issue price is determined based on the bids submitted. If the declared issue price is higher than the bid price submitted in an application, it may not qualify for allotment.

Conclusion

The IPO allotment process is crucial for investors in Initial Public Offerings (IPOs) as it determines share distribution. You can begin your journey in investing stocks, IPO and more with the BlinkX online trading app. It follows regulatory guidelines and categorises investors into different segments. Strategies like avoiding large applications, bidding at cut-off prices, applying early, filling in accurate details, and holding parent company shares can enhance allotment chances. The process involves a lottery system for fairness, and investors can check their allotment status on the BSE platform or the registrar's website.

FAQs On IPO Allotment Process

The optimal time to apply for an IPO is usually early in the subscription period to avoid potential issues on the last day.

IPO allocation is not strictly first-come-first-served. Various factors, including the IPO oversubscription, influence the allotment process.

Institutional investors, high-net-worth individuals (HNIs), and retail investors can participate in an IPO. The allotment may vary based on categories.

Generally, investors can submit multiple applications in an IPO, but specific rules and limits may apply. Check the IPO prospectus for details.

Yes, after IPO allotment, investors can sell their allotted shares in the secondary market.

The bid price in an IPO refers to the price at which an investor is willing to subscribe for shares. It helps determine the final issue price during the book-building process.