What is IPO Allotment? A Comprehensive Guide

When a company decides to go public and offer its shares to investors, it creates a buzz in the financial world. This process, known as an Initial Public Offering (IPO), is a hot topic in India, especially for those looking to invest in the stock market. But what happens after you apply for an IPO? How do you know if you’ll get the shares you applied for? This is where IPO allotment comes into play. In this blog, we’ll break down what IPO allotment is, how it works in India, why it matters, and much more.

What is an IPO?

Before we get into IPO allotment, let’s quickly cover what an IPO is. An Initial Public Offering (IPO) is when a private company offers its shares to the public for the first time. This allows the company to raise money from investors while giving people like you a chance to own a piece of the company. In India, IPOs are a big deal, with companies like Zomato, Paytm, and LIC making headlines when they go public.

But applying for an IPO doesn’t guarantee you’ll get shares. That’s where the IPO allotment process comes in, deciding who gets how many shares. Curious about how this works? Keep reading!

What is IPO Allotment?

IPO allotment is the process of distributing shares to investors who applied for an IPO. When a company launches an IPO, it offers a fixed number of shares. Investors submit applications to buy these shares, but not everyone gets them. The allotment process determines who gets the shares and how many.

In India, IPO allotment is regulated by the Securities and Exchange Board of India (SEBI) to ensure fairness and transparency. The process can feel like a lottery because the demand for shares often exceeds the supply. For example, if a company offers 1 million shares but receives applications for 5 million, not every applicant will get shares. This scarcity keeps investors on their toes, wondering if they’ll hit the jackpot.

Why Does IPO Allotment Matter?

IPO allotment is crucial because it directly affects whether you become a shareholder in a company. If you get allotted shares, you can benefit from potential price increases when the company lists on stock exchanges like the BSE (Bombay Stock Exchange) or NSE (National Stock Exchange). For instance, if you’re allotted shares at Rs. 100 and the stock lists at Rs. 150, you could make a profit right away.

On the flip side, if you don’t get an allotment, you miss out on the opportunity. This uncertainty keeps investors curious and engaged, as the outcome depends on various factors like demand, application size, and SEBI rules. Let’s explore how the allotment process works in India to satisfy your curiosity!

How Does IPO Allotment Work in India?

The IPO allotment process in India is systematic and follows SEBI guidelines to ensure fairness. Here’s a step-by-step breakdown to keep you hooked:

1. IPO Application

When a company announces an IPO, investors can apply for shares through their bank accounts (using ASBA—Applications Supported by Blocked Amount) or a broker. You specify how many shares you want to buy, usually in lots (a fixed number of shares, like 50 or 100). The money for these shares is blocked in your bank account but not debited until allotment is confirmed.

2. Categories of Investors

In India, IPO shares are divided into different categories to ensure a fair distribution:

• Retail Individual Investors (RII): Small investors applying for shares worth up to Rs. 2 lakh.
• Non-Institutional Investors (NII): High-net-worth individuals or entities applying for more than Rs. 2 lakh.
• Qualified Institutional Buyers (QIB): Big players like mutual funds, banks, and foreign investors.
• Employees or Shareholders (if applicable): Some IPOs reserve shares for company employees or existing shareholders.

Each category has a reserved portion of shares. For example, SEBI mandates that at least 35% of shares go to retail investors, ensuring small investors get a fair shot.

3. Oversubscription and Pro-Rata Allotment

If an IPO is oversubscribed (more applications than shares available), the allotment isn’t random—it’s calculated. For retail investors, SEBI ensures a minimum allotment of one lot to as many applicants as possible. If there aren’t enough shares, a pro-rata basis is used, meaning shares are distributed proportionally based on the number of applications.

For example, if 10,000 retail investors apply for 1,000 lots, each investor might get a fraction of their requested shares, or a lottery system may decide who gets the minimum lot. This suspense keeps investors glued to the process!

4. Lottery System for Retail Investors

When oversubscription is high, SEBI uses a computerized lottery system for retail investors to ensure fairness. The system randomly selects applicants to receive the minimum lot. This is why IPO allotment feels like a game of chance—your application could be picked, or it might not!

5. Allotment Finalization

Once the allotment is calculated, the company, along with the registrar (like Link Intime or KFin Technologies), finalizes the list of successful applicants. The shares are credited to your Demat account, and the blocked amount in your bank is debited for the allotted shares. If you don’t get an allotment, the blocked amount is released.

6. Refund Process

If you applied for more shares than you were allotted, the excess amount is refunded to your bank account. For example, if you applied for 100 shares worth Rs. 10,000 but got only 50 shares worth Rs. 5,000, the remaining Rs. 5,000 is refunded.

7. Listing Day

After allotment, the shares are listed on the stock exchange, and trading begins. This is when the excitement peaks—will the stock price soar, or will it dip? The allotment process sets the stage for this big moment.

Factors Affecting IPO Allotment

Ever wondered why some people get IPO shares while others don’t? Several factors influence the allotment process, keeping investors curious about their chances:

1. Demand for the IPO: High demand leads to oversubscription, reducing your chances of allotment.
2. Application Size: Applying for the minimum lot often increases your chances in the retail category, as SEBI prioritizes small investors.
3. Investor Category: Retail investors have a better shot at allotment than NIIs or QIBs due to reserved quotas.
4. Timing of Application: Applying early in the IPO window may improve your chances, as some believe it signals genuine interest.
5. Random Lottery: In oversubscribed IPOs, luck plays a role in the lottery system for retail investors.

How to Check IPO Allotment Status?

Curious to know if you got the shares? You can check your IPO allotment status online in a few simple steps:

1. Visit the Registrar’s Website: Go to the website of the IPO registrar (e.g., Link Intime or KFin Technologies).
2. Enter Details: Provide your PAN number, application number, or Demat account number.
3. Check Status: The portal will show whether you got shares, how many, or if your application was rejected.

You can also check through the BSE or NSE websites or your broker’s platform. The suspense of checking your status is a thrill every investor experiences!

Tips to Improve Your Chances of IPO Allotment

Want to boost your odds of getting IPO shares? Here are some SEO-friendly tips to keep you engaged:

1. Apply Early: Submit your application on the first day of the IPO to show genuine interest.
2. Use Multiple Applications (Legally): Each family member can apply separately using their own Demat account and PAN to increase your family’s chances.
3. Apply in the Retail Category: Stick to applications under Rs. 2 lakh to benefit from the retail quota.
4. Apply for Minimum Lots: Smaller applications are more likely to get allotted in oversubscribed IPOs.
5. Choose a Reliable Broker: Use a trusted platform like VENTURA, or your bank to avoid technical glitches.

Common Mistakes to Avoid

To keep your IPO journey smooth, steer clear of these pitfalls:

1. Applying in the Wrong Category: Ensure you apply under the correct investor category (RII, NII, or QIB).
2. Incorrect Details: Double-check your PAN, Demat, and bank details to avoid rejection.
3. Overapplying: Applying for too many shares may lead to partial allotment or rejection.
4. Ignoring Cut-Off Price: Always choose the cut-off price (the highest price in the IPO price band) to stay eligible for allotment.

Why Do Some IPOs Get Oversubscribed?

Oversubscription is common in India, especially for IPOs from well-known companies. But why does this happen? Factors like strong brand value, good financial performance, or market hype drive demand. For example, the LIC IPO in 2022 was oversubscribed nearly 3 times due to its massive brand recognition. This high demand creates a nail-biting wait for allotment results, keeping investors on edge.

IPO Allotment and Listing Gains

One reason IPOs are so exciting is the potential for listing gains—the profit you make if the stock lists at a higher price than the IPO price. For instance, if you’re allotted shares at Rs. 200 and the stock lists at Rs. 300, you could sell for a Rs. 100 profit per share. However, not all IPOs deliver gains, so research the company’s fundamentals before applying.

SEBI’s Role in IPO Allotment

SEBI plays a key role in making the IPO allotment process fair and transparent. Its rules ensure:

• A minimum quota for retail investors.
• A transparent lottery system for oversubscribed IPOs.
• Timely refunds for unallotted shares.
• Clear communication of allotment status.

This oversight builds trust in the system, keeping investors curious and confident about participating in IPOs.

Recent Trends in IPO Allotment in India

In recent years, India’s IPO market has been booming. In 2024, companies raised over Rs. 1 lakh crore through IPOs, driven by sectors like technology, renewable energy, and finance. The rise of digital platforms has made applying for IPOs easier, increasing participation and oversubscription. This trend keeps the IPO scene dynamic and exciting for investors.

Conclusion

IPO allotment is the heart of the IPO process, deciding who gets to own a piece of a company going public. In India, this process is fair, transparent, and regulated by SEBI, but it’s also filled with suspense due to oversubscription and lottery systems. By understanding how IPO allotment works, applying strategically, and avoiding common mistakes, you can improve your chances of success.

Are you ready to dive into the exciting world of IPOs? Stay curious, do your research, and apply smartly to increase your odds of getting allotted shares. The stock market is full of opportunities, and IPOs are a great way to start your investment journey. Keep an eye on upcoming IPOs, and who knows—you might just score big on listing day!

Disclaimer: Investing in IPOs involves risks. Always consult a financial advisor and research thoroughly before investing.

Frequently asked questions 

1. What is IPO allotment?
    IPO allotment is the process of distributing shares to investors who applied for an IPO, based on demand and SEBI guidelines.

• How can I check my IPO allotment status?
   You can check your IPO allotment status online using your PAN, application, or Demat account number on the registrar’s website, BSE, NSE, or your broker’s platform.

• Why do some IPOs get oversubscribed?
   IPOs get oversubscribed due to high demand driven by strong brand value, good financials, or market hype, exceeding the available shares.

• How can I improve my chances of IPO allotment?
   Apply early, use the retail category, apply for minimum lots, and use multiple family accounts with separate Demat accounts to improve your chances.

What happens if I don’t get IPO shares?
 If you don’t get IPO shares, the blocked amount in your bank account is refunded, usually within a few days.