DSIJ Mindshare

Missed The IPO Bus? Do Not Do It Next Time

Resident of Viman Nagar in Pune, Swapnil Shinde has been blaming his 'luck' last three months. He had filed applications thrice to subscribe IPOs floated by three different companies including the most buzzing one of a hyper-mart chain and never he got a single share allotted in his Demat account. He picked up the right ones, filed the applications as per procedure laid down by market regulator SEBI, opted for ASBA facility through his bank but on the day of listing he realised, 'luck' did not work in his favour. Shinde has now decided not to apply for IPO as he is not 'lucky enough.'

Hailing from Mehsana district in Gujarat, Jagdishbhai Nathabhai Patel had borrowed a good sum of money from his friends to apply for a recent IPO. Two days before the gala listing ceremony took place on the bourses and the stock of that company rocketed up by over 120 per cent, Patel was shocked to receive a text message from BSE telling him that he did not get a single share allotted. Patel had made his graduate son fill up the physical form to subscribe the IPO, got it checked by a local stock-broker's assistant, made the cheque payment as needed--everything was in line with this expectations except zero allotment.

So is it all about 'luck'--is it yet another 'lucky draw,' where some fortunate ones only qualify to get the bounties or is it pure science of calculations? Even as the Dalal Street is caught in never-before IPO euphoria in last 10 years, these days lakhs are filing IPO applications among whom only a few getting shares allotted and they have hence reasons to feel 'lucky.' Our neighbours, friends, family members, extended family members, enemies and colleagues talk in the same language these days--'did not get a single share.' So where do these shares go, who are the people who get allotments and how do they manage to get it. Some will even start smelling a corruption angle in it, some will pray before God that next time they get it, some simply give up and look for picking up stocks through markets but not IPO, some get envious of people around them who got allotted. We make a sincere attempt here to decode the entire IPO allotment process, functions involved in it, why some investors manage to get it, why some never get it.


Why the euphoria--BSE IPO index has caught investors' attention, as the index is up by 34.34 per cent over one year. The BSE IPO index is a gauge of the performance of the newly listed companies and the numbers reveal their quantum of profit-making just by subscribing to some of the IPOs, if not all. While the allottees managed to clock straight away 34 per cent plus profits on the very days of listing on an average, during the period under consideration, Sensex has delivered less than half of it, in terms of returns from investments. During the similar period, the Sensex has delivered 15.43 per cent returns.

Interestingly out of 26 companies, almost 17 companies have beaten the BSE Sensex's performance, suggesting that investors would have done better for themselves had they focused on IPOs alone when compared to Sensex investing.

Indeed, FY17 has been a positive year for the IPOs as some very good quality brands with strong financials and efficient business models were listed in the markets. Avenues Supermarts, Quess Corp, RBL Bank, Ujjivan Financial Services, Advanced Enzymes, Infibeam Incorporation, Mahanagar Gas are few of the newly listed companies that delivered a whooping three digit returns for the investors.

So did you get it? The answer for the question for the majority investors, is a clear 'no.' There are various IPOs coming in these days and listing with handsome gains. The IPO fever is not going to end soon rather we can say that it is building up an investment environment.

How does it happen behind the curtain? Reservations are done on a competitive basis. IPO allotment is done through reservation on competitive basis and this can be extended to the following categories:

Employees of the Company Going Public: The persons who are shareholders of the promoting companies in the case of a new company and shareholders of group companies in the case of an existing company get preference over the normal applicant. The person should be shareholder as on the date of filing the draft offer document with SEBI are associated with the issuer as depositors, bondholders or subscribers to services of the issuer.

In a public issue by a listed company, the reservation on competitive basis can be made for retail individual shareholders and in such cases the allotment to such shareholders shall be on a proportionate basis.

There is no any discretion in the allotment process. All allottees except anchor investors and retail individual investors are allotted shares on a proportionate basis with in their respective investor categories.


After the closure of the issue, the bids received are aggregated under different categories, such as reserved allotments, Qualified Institutional Buyers (QIBs), Non-Institutional Buyers (NIIs) and Retail Individual Investors.

Number of days for an investor to receive the Refund Order/Allotment Advice

The issuers are required to allot and then application money to be refunded within 15 days from the date of closure of the issue. The issuers are required to pay interest at the rate of fifteen percent per annum if the allotment letters or refund orders have not been dispatched to the applicants.


Not subscribed fully in retail category: If the issue isn’t oversubscribed in the retail category, then all applicants will receive shares in the proportion that they have applied for. This is called firm allotment. For example, if you have submitted bids for shares worth Rs. 2 lakh, you will receive full allotment, and so will someone who has bid for shares worth Rs. 20,000

The issue is oversubscribed: According to the rules laid down by market watchdog SEBI, the company cannot allot lower than the minimum lot size to anyone. Hence, the first thing the company does is allot minimum lot shares to everyone who has applied, regardless of how many you have applied for. The remaining shares are distributed proportionately to those who have bid for higher than the minimum lot. If you have bid for shares worth Rs. 2 lakh, you will receive the minimum lot, plus shares proportionate to your bid.

Suppose, the total number of shares bid for in minimum lots is bigger than the issue size. The minimum lots are allotted on a computerised draw of lots. Therefore, it’s quite possible that an applicant who applied for a minimum lot, gets his entire share, whereas someone who has applied for the maximum lot gets nothing. It also means that bidding for the maximum lot does not increase your chances of getting an allotment, or even a greater number of shares.


For public issue, the investors are categorised into three different categories viz. retail- individual customers up to Rs. 2 lakh, HNI/Non-Institutional bidders - Individual customers/companies, trusts, etc more than Rs. 2 Lakh, QIBs - Companies, Financial institutions, etc registered with SEBI – large quantities. The ratio of IPO application category wise depends as per SEBI circular for the particular IPO. E.g. 35:15:50

Many of the investors have a misunderstanding that allotment of IPO happens giving preference to time, quantity, etc. But it is not so, there is something more to it that we may need to understand. These applicants will receive the minimum lot regardless of how much they applied for. If the number of applications received is more than this, then a lottery follows. For e.g.: If the size of an IPO is 1000 shares and if 35 per cent is available for the retail category, then retail investors can apply for 350 shares. Now if the number of shares applied is up to 350, which means not oversubscribed, then everyone would get the number of shares applied for.

Assuming that there are 25000 shares to be allotted in retail segment and the IPO is oversubscribed. i.e. the number of shares applied is 1 lakh. Assuming the minimum lot size is of 250 shares, only a maximum of 100 applicants will be receiving the minimum lot size of 250. Because as per SEBI, no RII can be allotted less than the minimum bid lot, in case of over subscription. So, the maximum allottees in this case would be 100 investors.

Suppose, there is a case of multiple times oversubscription, allotment shall be determined on basis of draw of lots or the lottery system. The draw of lots is now a computerised process and thus there is no room for partiality. There is no bias and allotment does not depend on amount, time, broker, etc.


Read the Prospectus/ Abridged Prospectus and pay special attention to:

  • Risk factors
  • Outstanding litigations and defaults, if any
  • Financials of the issuer
  • Object of the issue
  • Company history
  • Background of the promoters
  • Instructions for making an application.

In case of any doubts/problems, contact the compliance officer named in the offer document.

In case you do not receive, within due period, the physical certificates/ credit to Demat account or refund of application money, lodge a complaint with the compliance officer of the issuer company and with the post-issue lead manager listed in the offer document.


Don’t fall prey to market rumours.

Don’t go by any implicit/explicit promise made by the issuer or anyone else.

Don’t invest based on the prevailing bull run of the market index or of scrips of other companies in the same industry or scrip of the issuer company/group companies.

Don’t bank upon the price of the shares of the issuer company to necessarily go up.

How to submit your bids

Applying for the maximum amount in IPOs may be counter-productive. In the case of IPOs where the demand is low, you will be stuck with a greater number of shares; and in IPOs with good demand, you may not get anything at all. A better strategy can be to get your family to participate in the IPO. Hence, instead of making a single application for the maximum lot, you could be better off making four applications for the minimum lot (for your spouse, your parents and you, for example). If an issue is oversubscribed many times, most applicants are likely to get nothing. So, in such cases it’s best to apply for the minimum bid if the broker feels that the issue is going to be popular. Even with that, chances of getting an allotment will reduce as oversubscription increases.



1. Basis of allotment is finalised by lead manager and worked out within two weeks from the date of the closure of the issue.

2. Share allocation in Demat accounts by the registrar is done within 15 days from the date of closure of the issue.

3. Listing of shares by the issuer company is carried out within 7 days from the finalisation of the issue


The primary market is most energetically and enthusiastically followed by most of the retail investors. There are various questions in the mind of the participants as they are not getting an allotment. There are certain criteria set by SEBI and we have tried to clarify each and every minute things of the IPO process till the allotment. When entire market is enjoying the listing gains of various new companies in the league, one should be thinking over why she or he is not getting an allotment these days. At the end of the report you must have understood the basic things including how to apply for an IPO strategically, what are the timelines and maximising probability of IPO allotment.


Continue Reading the Story...


Quick Tips

V K Vijayakumar Chief Investment Strategist, Geojit Financial Services

How IPO allotment process can be made easier for retail investors?

The allotment process has to be simple and fair. If it is made very simple, it won’t be fair. That’s why SEBI came out with guidelines, which are a bit complex but fair. We believe that the present system is good.

Can you give us broad idea about IPO allotment process for retail investors?

According to the SEBI guidelines, there are three categories of applicants: Qualified Institutional Buyer (QIB), Noninstitutional Investors (NII) and Retail Individual Investors (RII). For QIB, the merchant banker has the discretion to allot shares. In the case of over subscription, shares are allotted proportionately. For retail investors, the process is a bit complex. Retail investors are allowed to invest in smaller lots worth between Rs. 10000-15000, with a maximum of Rs. 2 lakhs per IPO. Full allotment is made if the issue is just fully subscribed or under- subscribed for this category. However, if the retail portion is over-subscribed, then the maximum number of RIIs who can be allotted the minimum bid lot will be decided by dividing the total number of shares available for allotment to RIIs by the minimum bid lot. Allotment will not be made below the minimum bid lot. In case there is a small oversubscription, then first the minimum lot is distributed among all participants and then the balance available shares in the retail portion shall be allotted proportionately to the RIIs, who have bid for more than one minimum bid lot. However, in the case of high oversubscription, the allotment is decided by computerized draw of lots. Here, luck plays a role in allotment.

Will you elaborate key tips for applying an IPO?

If an issue is oversubscribed many times, most applicants will not get any allotment, as in the case of the recent D Mart IPO. The maximum allotment will be the minimum bid. So in cases where the chances of over subscription are very high, it is better to apply for the minimum bid.

Rather restricting minimum bid lot, do you think retail investors should get less than minimum bid lot quantity shares in case of oversubscription?

No, there is no need to reduce allotment below the minimum bid lot. This will not solve the problem caused by heavy oversubscription. If demand for something is far in excess of supply, there are only two options: either the price should be allowed to be fixed by the market (this happens on listing) or it should be rationed. In the present IPO process, ‘rationing’ is done through a fair process. Share is not an essential item to be distributed to everyone. There is always the secondary market from which retail investors can buy.

Behind The Curtains:

Sandeep Parekh, former top-boss of market watchdog, SEBI in this exclusive interaction with Nikita Singh defines the rules of allotment of shares post closure of IPOs and what further SEBI needs to do to make retail investors smile

In your opinion, can there be a better alternative process for an allotment of an IPO as compared to the existing one?

There is a need to revisit the quota system for initial public offerings. By offering retail investors a special ‘quota’ in an IPO, investors are lured into a highly risky equity product with a dangled carrot of 'free money'. Nothing could be further from the truth. Investing in IPOs could be highly profitable, but it could also wipe away 80% of an investor’s saving in just two weeks. This is not a product for retail, and certainly not a product which should be in the business of luring retail participation. Freeing up the market to ordinary market forces without quotas would reduce the moral hazard and imperfections like IPO frauds substantially and eliminate subsidies to punters. SEBI’s eyes should be on investor interest, not on guaranteeing returns to flippers who want free money in two weeks.

But SEBI’s Primary Market Advisory Committee would be reviewing the basis of allocation for retail investors in the IPOs. Reportedly, this is pursuant to RBL Bank IPO (which was oversubscribed 5.6 times in the retail category), after SEBI noticed that more number of shares were allotted to low value bids. So from the earlier system, which was skewed in favour of those making high value bids, the basis of allotment is now skewed in favour of small applications and IPOs have largely become lucky draws for retail investors.

Can there be easy process for filing IPO, apart from ASBA?

Currently, the bidding period is shorter and listing process is faster than before. ASBA has made it easy for investors to apply in any public/rights issues by using their bank account, with easy to open demat accounts for the purpose of applying to IPOs. The process is simpler, investor does not have to bother about refunds since money would be debited from the bank account only when his/her application is selected for allotment after the basis of allotment is finalised.

But now retail investors are getting more demat accounts opened for relatives and family members and applying under the same instead of making high-value applications. A review of IPO allotment basis may lead to some changes and retail investors may get incentive to make high-value applications if SEBI decides to go back to its original formula. Also, prior to mandatory ASBA, a significant number of retail applications used to come in through the non-ASBA route, as a large number of investors prefer cheque-based applications. Several investors might be left out from participating in future IPOs due to the limited reach of ASBA, especially in far-flung areas.

IPO allotment is very confusing. Retail investor may not get an allotment. How can it be simplified?

The allotment process is not very confusing. However, many retail investors seem to be quite perplexed about getting shares in an IPO as they are not quite well-versed with the current IPO allotment process, and in this confusion, they are at a loss as they still follow the old trend while applying to the IPOs. Retail investors make listing losses by applying in the wrong IPOs or following the wrong strategies. As per the current practice, every investor has equal probability of getting shares in an IPO irrespective of the lots he applied in an oversubscribed issue. Even if he applied for minimum permissible lot, he may get minimum number of stocks allotted to shareholders. As provided in the first question, the concept of free money being handed over should be dis-abused and retail investors are not suited for IPO risks and they should not be pushed towards it.

Can you give us idea about smart tips for applying in an IPO?

Retail investors think that if an IPO gets a lot of interest, it is a good option. However, investing in the IPO of such a company means that they might get only a few shares compared to the number of shares they apply for. They should keep in mind that the issue size and proportion for each category of investors is fixed. If an issue is oversubscribed, allotment happens as per predefined rules.

Conducting research and a detailed fundamental analysis of the company is one thing. There are third party research reports, but one should be careful about these- investment banks/ brokerage houses publishing the reports might have a conflict of interest.

Should retail investors look at the kind of participation by institutional investors, since they have access to information that retail investor may never have access to?

Study the performance of other companies set up by the same promoters, check if the company is ready to start business operations and the gestation period is not long, invest in companies that operate in high-growth sectors of the economy. Broadly, if the investor is not willing to do his or her homework, IPOs may not be suitable for them as they are very high risk products.

Will there be possibility of anchor investment type slot for retail investors in future?

Allocation to anchor investors is on a discretionary basis and subject to the following limits:

(i) Maximum 2 such investors for allocation upto Rs. 10 crore;

(ii) Minimum 2 and maximum 15 for allocation above Rs. 10 crore and upto Rs. 250 crore, subject to minimum allotment of Rs. 5 crore per such investor;

(iii) Minimum 5 and maximum 25 such investors for allocation above Rs. 250 crore, subject to minimum allotment of Rs. 5 crore per such investor.

The relaxation in anchor investor norms would allow firms to have a bigger portion of the issue covered with a diverse set of investors who, in effect, underwrite part of the issue. The purpose of anchor investors (introduced in 2009) is to build confidence among investors in a new issue. They are QIBs who apply to invest in a company going public a day ahead of the issue opening and are not bound by proportional allotment if the issue is oversubscribed. Retail investors already have a fixed quota in the current system and therefore there is no case for another retail quota bucket. The purpose of anchor investors is having sophisticated investors who can better analyse a company and therefore provide a signal to other investors that investing in the company is relatively safe.

How Does It Happen

Sangeeta Lakhi, Senior Partner, Rajani Associates

a) This implies that if the IPO is oversubscribed, few retail investors will receive the minimum lot but not more than that, since the 35% shares has to be spread across such retail investors. In case of multiple times oversubscription, allotment is determined on the basis of draw of lots or the lottery system.

b) One can say that 35% cap on retail investors may be quite small, keeping in mind the investor population. At the same time, a company must divide the shares into the 3 categories so that it has various sets of investors and which also boosts the company's enterprise value.

c) Surprisingly, in global markets, there is no rule of 35:15:50. Most retail investors get little or no chance of buying new stock at the offering price. The vast majority of high profile offerings are bought by large funds and even when an allocation is released to retail investors it is controlled by the brokers who naturally offer it first to their biggest (aka highest fee-paying) clients. By the time the big boys are finished there is very little left for you and me. The sense of frustration, of being left out, that that causes just adds to the desire to be in on the deal and that, when combined with the whole hope and doing good things, usually means that there is no shortage of willing buyers in early trading.


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