What is the IPO Allotment Process?

Last Updated: 13 Jan 2025

The IPO allotment process is key in an IPO, as it involves the distribution of shares to investors who apply during the subscription period. When a firm goes public, it seeks applications from individuals and institutions to purchase its shares. But in most instances, demand for shares outstrips supply—particularly for high-profile IPOs. That is when the allotment process comes into play, which determines the number of shares allotted to each applicant.

This step generally occurs once the IPO subscription window closes—a process that can take days, often within the week. It involves verifying applications, removing duplicates, and allocating shares based on the subscription category. The allotment for retail investors is as per Securities and Exchange Board of India (SEBI) guidelines, ensuring fair and transparent distribution.

Where an allotment is oversubscribed, it is done by lottery, guaranteeing equal treatment of applicants. Shares may be allocated to institutional investors and high-net-worth individuals on a proportionate basis. Read on to discover more details about the IPO allotment process.

The Allotment Process

The IPO allotment process involves various steps. This structured process ensures transparency and fairness, adhering to SEBI’s regulations for all investors. Here’s a detailed breakdown of the steps involved:

Step 1: Closure of IPO Subscription

Depending on the IPO, the subscription period will be 3 – 5 days. Once the subscription period is over, all applications submitted by investors are collected and reviewed by the company.

Step 2: Verification of Bidding

The registrar reviews all submissions to search for duplicates or invalid bids and eliminate them. Only successful applications are advanced to the next stage.

Step 3: Categorisation of Applicants

All investors are classified as retail investors, qualified institutional buyers (QIBs), and high-net-worth individuals (HNIs). The allocation is done category-wise as per SEBI norms.

Step 4: Allocation Based on Demand:

If the issue is undersubscribed, all applicants get shares as requested. If an IPO is oversubscribed, shares are allocated on a pro-rata or lottery basis to ensure a fair distribution.

Step 5: Allotment Finalisation

The registrar finalises whether an applicant is successful or not and how many shares were allotted to that specific applicant.

Step 6: Issuance of Shares

The submitted shares get credited into the investor’s Demat account, generally within six to seven working days after the IPO ends.

Step 7: Refund Process

For unsuccessful or partially allotted applications, the refund for the blocked amount is processed via the ASBA (Application Supported by Blocked Amount) mechanism.

How Does The Registrar Decide On The Allotment?

When the application process for an IPO is done, one of two things usually happen:

• 1: When the application process for an IPO is done, one of two things usually happen:
• 2: Total number of bids is more than shares offered by the firm.

Case 1: Total number of bids is more than shares offered by the firm.

If this were to happen (and it’s not all that often that it does), the registrar will have no need to intervene. Every applicant with a valid bid will get the lot that they requested. No one is bound to walk away without any shares.

Case 2: Total Number Of Bids ≥ Shares Offered By Firm

This case is more likely to happen and requires a bit of planning from the registrar to decide how the allotment actually takes place. Thankfully, there is a mandate issued by India’s market regulator, SEBI (Securities and Exchange board of India) which stipulates that at least one lot must be given to every applicant. Keeping this in mind, let’s work with an example to understand the allotment process in greater detail.

Let’s assume that Company A offers 7,00,000 shares as a part of it’s IPO and the minimum lot size is 70. As per the SEBI mandate, the maximum number of investors who are bound to get at least one lot is: 10,000(7,00,000 ÷ 70). Consequently, 10,000 investors will definitely receive at least one lot.

Depending on the margin by which the IPO is oversubscribed, the allotment procedure varies. They are dealt with in the following manner:

• 1. Small Margin: If the IPO is oversubscribed by only a small margin, the minimum lot (70 in the example above) will be distributed among all applicants. The remaining shares will be allocated proportionally to those investors who had submitted more than one bid.
• 2. Large Margin: For situations where the shares are oversubscribed by many multiplied of the original amount (like Reliance’s IPO in 1977), the registrar resorts to allotment via a lucky draw. In such situations, investors whose bids don’t make it during the draw will not be allotted any shares.

In case you applied to an IPO and missed out on receiving any shares, one of two things could have happened:

• Your bid was deemed invalid (incorrect PAN/Demat account number)
• Your name didn’t come up in the lucky draw

IPO Allotment Rules

The IPO allotment rules in India, governed by SEBI, ensure fairness and transparency in the allocation of shares. Check out the key rules:

• Only Valid Applications Are Allocated: Allocations go only to valid applications. Applications with errors like wrong Demat account details or multiple applications with the same PAN are rejected.
• Cut-Off Price Compliance: All bids that are at or above the cut-off price are eligible for allotment.
• Allocation Within Categories: Shares are allocated within each investor category, including retail, NII, and QIB. With the prior approval of the Lead Manager, Registrar, Exchange, and issuer, oversubscription in any category may be used to offset undersubscription in others.
• QIB Exclusive: Any shares not allocated in the QIB category are excluded from other categories.
  Basis of Allotment: The Registrar issues a Basis of Allotment, which explains how shares were allocated, how many shares each investor received, and other details, providing transparency throughout the process.

IPO Allotment Status Check

Investors can check their IPO allotment status online through the registrar’s website or the stock exchange portal. By entering details like PAN, application number, or Demat account number, they can see whether shares have been allotted. The status is usually available a few days after the IPO subscription closes.

Conclusion

The IPO status is an indication of the collective trust that the company manages to command in the stock market. In recent times, an IPO is a huge event that attracts significant media coverage and interest from both retail investors as well as large financial institutions that are looking to buck the latest trend. Once the allotment procedure is done, the shares are then listed on the exchange within days which then opens it up to trading. Companies do share their IPO calendars to let you know about the upcoming IPO events.

Frequently Asked Questions

What happens after IPO allotment?

After IPO allotment, shares are credited to the successful applicants’ Demat accounts, and refunds are processed for unsuccessful applications. The company gets listed on the stock exchange within a few days, allowing investors to trade the shares.

How can I increase my chance of getting an IPO allotment?

To improve your chances of IPO allotment, apply through multiple Demat accounts under family names, ensure accurate application details, and bid at the cut-off price. Oversubscribed IPOs often use a lottery system, so the number of applications matters more than bid size.

Is IPO allotment first come, first serve?

No, IPO allotment is not on a first-come, first-serve basis. All valid applications received during the subscription period are treated equally. Shares are allocated based on SEBI guidelines, demand, and, in oversubscription cases, a lottery system.

What happens if an IPO is not allocated?

If an IPO is not allocated, the blocked amount in the investor’s bank account is unblocked or refunded through the ASBA mechanism, typically within a few days of the allotment process completion.

Is money deducted before IPO allotment?

No, money is not deducted before IPO allotment. The ASBA mechanism blocks the amount in the applicant’s bank account. It is deducted only if shares are allotted while unallotted funds remain untouched.