Initial Public Offerings (IPOs) can be a thrilling time for investors, offering a chance to be part of a company's growth story from the get-go. But securing shares in a hot IPO can be a competitive feat. This blog dives deep into the process of IPO share allotment, explaining how those coveted shares are distributed among eager investors.
Understanding the different players
Before we delve into the mechanics of allotment, let's meet the key players involved in the IPO process:
- Issuing Company: The company going public and raising capital by selling new shares.
- Book Running Lead Manager (BRLM): The investment bank(s) managing the IPO process, including share allocation.
- Retail Investors: Individual investors applying for shares through their brokerage accounts.
- Institutional Investors: Large investors like mutual funds, insurance companies, and hedge funds.
- Registrar: An independent agency overseeing the allotment process and ensuring fair distribution.
IPO subscription process
The IPO allotment process begins with the subscription period. Here's a breakdown of what happens:
- IPO Announcement: The issuing company announces its intention to go public, detailing the offer price, number of shares offered, and other relevant information.
- Prospectus Filing: A detailed document outlining the company's financials, business plans, and risk factors is filed with the regulatory body (SEBI in India).
- Investor Applications: Retail and institutional investors submit applications to their brokers or directly to the BRLM, specifying the number of shares they wish to purchase.
How are IPO shares allotted?
Once the subscription period closes, the allotment process commences. Here are the different scenarios that can play out:
- Undersubscribed IPO: If the demand for shares is less than the number offered, all investors will likely receive the full allotment of shares they applied for.
- Oversubscribed IPO (Most Common): This is when the demand for shares surpasses the number available. Here's how allotment might occur:
- Proportionate Allotment: Shares are distributed proportionally based on the number of shares applied for by each investor. However, this method rarely happens due to the high number of applicants.
- Lottery System: A computerised lottery is conducted to distribute shares among applicants. This ensures a fair and random allocation process.
- Reservation Categories: SEBI mandates the reservation of a specific portion of shares for different investor categories (retail, institutional, etc.). This ensures broader participation and prevents large institutions from dominating the allotment.
How to find your IPO allotment status?
After the allotment process, the registrar usually announces the results within a few days. You can check your allotment status by:
- Brokerage Account: Most online brokers provide a platform to view your IPO allotment status.
- Registrar's Website: The registrar might have a dedicated portal where investors can enter their application details to check their allotment status.
Conclusion
IPO allotment can be a waiting game. Remember, even in an oversubscribed IPO, there's always a chance you might not receive the full allotment you applied for. However, by understanding the process and the factors influencing allotment, you can approach your IPO investment strategy with a more informed perspective. Happy IPO investing!
