Let’s say,
A company XYZ intends to issue 1 lakh shares in an IPO and has decided a lot size of 10 shares per lot.
In this case, Total no. of lots on offer = (Total no. of shares / Total no. of shares in 1 lot), which equals to 10,000.
Whenever a retail individual investor will bid for shares in an IPO, he/she will bid in terms of no. of lot like 1 lot, 2 lot and so on but they cannot bid in terms of no. of shares. Once all the bids are submitted, a system process is run to eliminate all the improper submission of bids by the investors.
Now, after getting the total no. of successful bids, there may be 2 cases which are:
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Total cumulative no. of bid lots < Total no. of lots offered
- In case the total no. of bid lots, by all the applicants combined is less than total no. of lot offered then everyone gets the allocation of same number of lots that they had bid for.
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Total cumulative no. of bid lots > Total no. of lots offered
- This case is little complicated. Here, while allotting the shares, SEBI rules are taken into consideration, according to which no individual can be allotted more than 1 lot.
Again, there can be sub-cases in this i.e.:
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Small Over-Subscription – In this case, each applicant with successful bid would be 1st allotted with 1 lot of shares and the balance shares shall be allotted proportionately.
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Large Over-Subscription – If the over-subscription is extremely large then each applicant with successful bid cannot be allotted even 1 lot of shares. In this situation, according to SEBI, the lots shall be allotted on a lucky draw basis. The process is all computerized so there are no chances of any partiality.
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Arbitrageurs:Arbitrageurs are those who try to make profit from the difference in the prices of an asset due to market conditions.
Additional Read:- Upcoming IPO
Reason for No Allotment of Shares in an IPO
There can be two reasons for non-allotment of shares in an IPO offering which are mentioned below:
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Invalid bid because of invalid PAN no. or invalid Demat Account no. or multiple applications submitted from the same name.
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Applicant could not get assigned any lot after the lucky draw process for allocation of shares, in case of huge over-subscription).
IPO Allotment Process FAQ’s:-
What is IPO Allotment?
When an IPO gets announced, investors from different categories start applying for shares. Once the applied share gets credited to their Demat & Trading account, it is referred to IPO allotment.
Is IPO allotment first come first serve?
No, the IPO allotment doesn’t happen on the basis first come first serve. The allotment process totally depends on how the IPO got responses from the investors. If the IPO is undersubscribed, then the investor may get allotted all the lots for which they have applied. If the IPO is oversubscribed, then the allocation of shares to the retail investor happens through a computerized process.
How can I increase my chances of getting an IPO allotment?
As a retail investor, you can only increase your chances of getting an IPO allotted by applying for shares through multiple demat accounts, say, a family member or a friend. You cannot apply for shares on your own name from multiple Demat accounts.
Is IPO allotment random?
The allotment of IPO shares depends on how the investors have showed their interest to it. There are different cases which affect the IPO allotment process:
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In case the total no. of bid lots, by all the applicants combined is less than total no. of lot offered then everyone gets the allocation of same number of lots that they had bid for.
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The other case is when the total no. of bid lots is by the applicants is more than the offered, then SEBI rules are taken into consideration, according to which no individual can be allotted more than 1 lot.
When the IPO is oversubscribed, then the scenario is totally different. Oversubscription is again, divided into small and large.
How do you check IPO is allotted or not?
You can visit to https://www.bseindia.com/investors/appli_check.aspx or https://www1.nseindia.com/products/dynaContent/equities/ipos/ipo_login.jsp and enter the required details to check the status of your application.
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