Securing an initial public offering is just the beginning of an IPO process. Once the bidding process is over, the applications that qualify are worked out to determine how the shares will be allocated to the investors. Allotment allocation is a well-defined procedure based on the demand of investors, number of shares available, and regulatory guidelines. It is important for investors to know what to expect once they’ve applied for an IPO, and knowing each stage can help.
What is IPO Allotment?
The allotment of shares during an IPO is the procedure by which the companies allocate the shares to the investors who have applied for the IPO and the shares are eligible for them. The registrar is responsible for keeping records of applications and operates on the basis of the approved basis of allotment.
If the total number of shares that an investor class applies for is less than or equal to the number of shares available in that investor class, the investor class may obtain the number of shares they applied for. If the demand for shares in the IPO surpasses the shares available, the IPO is said to be oversubscribed and the allotment would be made as per the rules.
Step 1: The IPO Subscription Period Closes
The allotment process begins after the IPO bidding period ends. Investors can generally apply for an IPO during the specified opening and closing dates.
During the subscription period, investors submit their applications through ASBA or other permitted channels. They select the number of lots they want to apply for and place their bid within the approved price band or at the cut-off price, where applicable.
Once the issue closes, no new applications are accepted. The registrar then begins processing the application data received from eligible channels.
Step 2: Applications Are Verified
The registrar reviews the applications before preparing the allotment data. Invalid or incomplete applications may be rejected during this stage.
Some common reasons for rejection may include:
- An incorrect or incomplete application.
- An invalid or inactive demat account.
- Insufficient funds or an unsuccessful ASBA mandate.
- Multiple applications using the same PAN in situations where they are not permitted.
- Incorrect investor-category details.
Step 3: The Final Subscription Data Is Determined
After valid applications are identified, the total demand for the issue is calculated across different investor categories.
A public issue may have separate allocation portions for categories such as:
- Qualified institutional buyers (QIBs).
- Non-institutional investors (NIIs).
- Retail individual investors (RIIs).
- Employees, where an employee reservation is available.
- Shareholders, where a shareholder quota applies.
The level of subscription in each category can differ. Therefore, allotment is generally determined separately based on the shares reserved and applications received within the relevant category.
Step 4: The Basis Of Allotment Is Finalised
The registrar prepares the basis of allotment after analysing the number of valid applications and the level of oversubscription. This process is completed according to the applicable regulatory framework and in consultation with the stock exchanges.
For heavily oversubscribed retail issues, eligible investors may not receive the full quantity of shares they applied for. The allotment process may first aim to provide one minimum application lot to as many eligible applicants as possible, subject to the number of lots available.
Step 5: The IPO Allotment Is Approved
Once the basis of allotment is prepared, it is submitted to the designated stock exchange for approval. The final allotment is then processed based on the approved allocation.
Investors can check their IPO allotment status after the registrar makes the information available. The status generally shows whether an investor has received shares and the quantity allotted.
Step 6: Shares Are Credited to the Demat Account
After the allotment is finalised, shares allotted to successful applicants are credited to their demat accounts before the listing date.
Once the shares are credited, investors can generally see them in their demat holdings before the stock begins trading on the exchange.
How To Check The IPO Allotment Status
Investors can generally check their allotment status through the registrar’s website or other authorised channels. They may need details such as:
- PAN.
- Application number.
- Demat account details.
The exact method can vary depending on the registrar and the available options.
When applying for an upcoming IPO, investors should not assume that a successful application guarantees allotment. High demand can reduce the chances of receiving shares, especially when the issue is significantly oversubscribed.
Conclusion
The IPO allotment process is a well-defined procedure, ranging from the application verification stage to the analysis of the application subcription and subsequent approval and allocation of shares. The final outcome can vary due to oversubscription, the type of investors and the number of valid applications. Getting the IPO allotment is not assured, especially in the event that demand is high. It is advisable for investors to read through the offer documents, familiarise themselves with the risks and track and be aware of key dates before applying. A trading and investment platform like 5 paisa can also enable investors to track the market dynamics and make the most of their investment.
