Learn how an IPO allotment is done

IPO allotment procedure

Initial Public Offering (IPO) is a process by which a privately held company makes it’s shares and ownership available to the general public. The IPO is usually underwritten by one or more investment bankers, who do the needful to list the shares on the stock exchanges. Let us look at how an IPO allotment is done.

How is IPO allotment done?

Once a company files its Red Herring Prospectus with the regulatory body, the bids from the public for the IPO are registered. A bid can be accepted or rejected for multiple reasons, which we will look at shortly.

The three scenarios in an IPO subscription are:

  1. Under subscribed – Number of bids received is less than the number of shares offered for IPO
  2. Correctly subscribed – Number of bids received is equal to the number of shares offered for IPO
  3. Over subscribed – Number of bids received is more than the number of shares offered for IPO

In the first two instances mentioned above, every applicant gets allotted as per his application

Over Subscribed

Small over subscription

Instances where the over subscription is small, such as Kalyan Jewellers and IRFC, the minimum lot will be distributed across all eligible applicants. The remaining shares will be assigned proportionally to the investors who have bid for more than one lot.

Massive over subscription

Instances where the over subscription is large, such as Shyam Metalics and Indigo Paints, where an applicant cannot be allotted even one lot, then the allotment takes place via lucky draw. The lucky draw will be computerized. There will not be any bias or partiality on this. Hence, in very large over subscriptions there could be some names not drawn in the lottery.

Reasons for shares not being allotted

There are two reasons why you may not have been allotted shares in an IPO:

  1. Your name was not picked in the lucky draw in case of large over subscription.
  2.  You bid for the IPO was termed invalid due to incorrect Demat account number, incorrect PAN number, or multiple applications submitted for the IPO

Hope now one can understand how IPO allotment is done. You can see list of upcoming IPOs here.

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