Ever wondered why did you not receive an IPO allotment? Know how IPO shares are allotted!

Did not get an IPO allotment? Know the process here!

Initial public offering or IPO is a process in which, a privately-held organisation makes the shares of the firm available to the general public for purchase, which can also be traded on the exchanges, once listed. This application is made available to the public through assigned banks and online mediums to bid. If you have ever applied for the shares of an IPO, you must have observed that many a time, no shares were allotted to you while your friend was allotted some in the same IPO application. So, why does this really happen and how do IPO shares get assigned to applicants? This post will help you to understand the allotment process of an IPO in detail and the reasons for zero allotments.  

Procedure for allotment of shares in IPO:

After a company launches an IPO to the general public, all bids for the shares are registered online. Once the bids are registered, all invalid bids, which were incorrectly submitted, are eliminated from the total number of bids thereby, further leading to the final number of successful bids for the said IPO.  

There are two cases amongst which, the situation of a company may fall in:  

1. The total number of successful bids is either less than or equal to the number of shares offered by the firm.  

2. The total number of successful bids is more than the number of shares offered by the company.  

In the first scenario, when the total number of bids made by the applicants is less than or equal to the number of shares being offered, a complete allotment of stocks will take place. Thus, every applicant, who has applied for the IPO will be assigned shares of the company.  

In the second scenario, if the total number of bids made by the applicants is more than the number of shares being offered, then the allotment process of shares requires more planning. Securities & Exchange Board of India (SEBI) mandates that at least one lot should be allotted to every individual who has applied. Let us understand this with an example.  

Assume that there are 10 lakh shares offered to the investors and the minimum lot size is 100. Then the maximum number of investors, who will get at least one lot is = 10,00,000/100 = 10,000. Therefore, 10,000 investors will be allotted at least one lot.   

For the allotment procedure in case number 2, there are two types:  

1. Small oversubscription  

The minimum lot will be distributed amongst all applicants and the remaining shares will be assigned proportionally to all the investors, who have bid for more than one lot.  

2. Large oversubscription  

In such cases, where there is an oversubscription that even one lot cannot be allotted to every applicant, which is a common scenario in a booming market, then allotment takes place via lucky draw. It will be computerised without any partiality. Therefore, during large oversubscription, some names are not drawn in the lottery system, which results in the shares not getting assigned to many applicants.  

Reason for no allotment of shares  

There are two reasons if shares were not allotted to you, which are:  

1. Your bid for the IPO was termed invalid due to an incorrect Demat account number, incorrect PAN number, or more than the maximum number of applications submitted for the IPO.  

2. Your name might not get picked out in the lucky draw in the case of large oversubscription. 

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