What is IPO Allotment Process

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  • 14 Feb 2023

Initial Public Offering (IPO) is a crucial step in a company's journey from being privately held to publicly traded. During this process, shares of the company are allocated to potential investors. Understanding IPO allotment and its working process is essential for investors and companies looking to go public. Read on to learn the intricacies of the IPO allotment process.

IPO allotment refers to allocating shares to investors applying for them in an IPO. When a company intends to go public and provides its shares to the general public for the first time, it conducts an IPO. The IPO allotment process determines how the available shares are distributed among interested investors.

During the IPO allotment process, investors who wish to apply for the IPO submit their applications, specifying the quantity of shares they want to purchase and the price at which they are willing to buy them. The company, along with the underwriters and regulatory authorities, then reviews these applications and allocates shares to investors based on specific criteria and predetermined rules.

After a successful IPO application, ideally, one of two things occurs:

  • Case 1: The total number of bids is less than the shares offered by a company
  • Case 2: The total number of bids is more than the shares offered by a company

Now, let's delve into these two scenarios in detail.

Case 1 In the first case, where the total number of bids is less than the shares a company offers, eligible investors will receive the requested lot without the Registrar's intervention.

Case 2 On the other hand, if the total number of bids exceeds the shares offered by a company, the Registrar must devise a strategy to distribute allotments. In this case, the Registrar must adhere to the guidelines set by SEBI (Securities and Exchange Board of India), which require providing at least one share to each applicant. The table given below will help in better understanding of this:

IPO Shares

5 Lakh

Minimum lot size

50

Maximum number of investors who will get at least one lot

5 lakh / 50 = 10,000

Particulars Amount
IPO Shares5 Lakh
Minimum lot size50
Maximum number of investors who will get at least one lot5 lakh / 50 = 10,000

Here there can be two cases:

1. Small over-subscription: In the case of a small oversubscription, the company initially allocates shares of 1 lot to successful applicants. Subsequently, the company evenly distributes the remaining shares among the applicants.

2. Large over-subscription: In instances of significant over-subscription, successful bidders don't get even a single lot of shares. In such situations, the IPO allotment process for retail investors or eligible applicants follows a lucky draw basis following SEBI guidelines.

The IPO registrar's website allows applicants to check the IPO allotment status. A financial institution registered with SEBI and stock exchanges serve as an IPO registrar. BSE and NSE websites provide applicants the option to check the IPO allotment status.

1. Share Credit: Once the IPO allotment process is over, shares are credited to the Demat accounts of successful allottees. The Demat account reflects the allocated shares, making them electronically accessible to investors.

2. Listing on Stock Exchanges: After the share allotment, the company's shares are listed on the stock exchanges where trading occurs. This step involves fulfilling the necessary regulatory requirements and complying with the listing norms of the respective stock exchange.

3. Trading Commences: Upon successful listing, the allocated shares become available for trading. Investors can buy or sell these shares through brokers or online trading platforms. The market's demand and supply dynamics determine the share price.

Check out our curated list of upcoming IPO here.

In Conclusion

The post-IPO allotment phase is critical for both the company and investors. The company aims to deliver on its growth plans, expand its business, and generate value for shareholders. Meanwhile, investors closely track the performance of their investments and make informed decisions based on the company's fundamentals and market conditions.

FAQs

No, there is no partiality, as the process takes place online.

There could be two possible reasons:

  • Invalid bid due to invalid PAN or Demat account or multiple application submissions at the same time
  • Non-selection of name in the lucky draw contest

An IPO registrar is a financial institution registered with regulatory authorities and stock exchanges. It oversees the IPO allotment process, verifies applications, and allocates shares to successful applicants. The IPO registrar also provides a platform for applicants to check their allotment status.

The process takes about 7 days when the Registrar confirms the allotment of shares to successful bidders.

Yes, you can participate in future IPOs even if you were not allotted shares in previous offerings. Each IPO has its independent allotment process, and being previously unallotted does not impact future applications.

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