What Happens when an IPO is oversubscribed in India?

Short Answer

IPO is alloted by following the pre-defined rule laid down by the SEBI. When an IPO is oversubscribed it gets allocated by considering the minimum lot size. If still not solved, then a computerized draw of lots is conducted.

Detailed Answer

An IPO is oversubscribed when the number of shares that investors are willing to purchase is higher than the number of available shares. To put it simply, IPO oversubscription happens when the demand for a share is higher than the supply of the shares. Here in this article, we are going to discuss what happens when an IPO is oversubscribed in India and how they are allocated among the investors. So without any further delay, let us get it started.

Rules for Allocation of an IPO in case of Oversubscription

The allocation of shares of an IPO is done by the predefined rules set by the Securities and Exchange Board of India (SEBI). In IPO, investors are broadly categorized into the following categories.

  1. Qualified Institutional Investors
  1. Non-Institutional Investors
  1. Retail Investors
  1. Others (Employee Category in some case and so on)

Here, 50 percent of the total share of an IPO is allocated to the first category of investors which is Qualified Institutional Investors, and the remaining 35 percent then gets allocated to the retail investors.

In the case of IPO oversubscription, it gets allocated to the retail investors by calculating the total number of shares available for the retail investors and dividing it by the minimum lot size. This process helps in determining the number of total retail investors who will be allocated shares of an IPO.

However, even after all this, there is a higher chance that the number of retail investors comes higher than the maximum number of shares issued. In such cases, the eligibility for the minimum bid is determined by lottery, which is a computerized process, leaving no room for any potential errors.

Conclusion

So now you know what happens when an IPO gets oversubscribed in India. Good IPOs often get oversubscribed as the demand to buy the share of a particular company gets high. If you want to anything more about IPO and how it works then leave your queries in the comment section down below.

Tagged With: ipooversubscribed ipoinitial public offeringipo subscription
Categories: IPO Basics
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Related FAQs

What is an IPO or Initial Public Offering?

IPO or Initial Public Offering is the process through which a private company goes public by offering its shares to the public for the first time.

What happens if the IPO is not fully subscribed?

The SEBI (Securities and Exchange Board of India) requires every IPO to get at least an overall 90% subscription to proceed to the allotment process. If an IPO fails to get a 90% overall subscription (including the QIB, NII, and Retail category) by the last day of the issue then the IPO is cancelled and the money collected from the investors is refunded back.

How to check IPO allotment status in India?

IPO's (Initial Public Offering) is very popular right now. Therefore getting an allotment is not easy. There are two different ways in which you can find out your allotment status. These are through the BSE India website and the company Registrar's website. Know the details and another bonus way of finding out allotment status here.

Why did some of the recent IPOs gave poor listing gains? Is the IPO craze over?

IPOs have been extremely popular lately as a result of increased retail participation, ongoing bull run, and massive listing gain opportunities. However, the Indian stock markets went through a minor correction which resulted in a muted performance of some IPOs. The market negativity coupled with the lofty valuations of some of the IPOs led to poor listing gains, but the craze might not be over.

Can we sell IPO shares immediately?

In an Initial Public Offering (IPO) a company sells its shares to investors in order to raise money. As a retail investor, you can apply for an IPO from the primary market in order to get the shares offered by the company. Once the shares get listed on the secondary market, you can sell your shares provided you have received an allotment in the primary issue.

Can a minor apply in IPO?

Have you ever wondered id a minor can apply for an IPO? Yes, a minor can apply for an IPO given that he/she has a PAN card and a Demat account.

How to increase IPO allotment chance?

Subscribing for an IPO with multiple accounts, avoiding last-day applications, and choosing minimum bids are few ways to increase IPO allotment chances.

Can we apply for an IPO online on Sunday?

Yes, you can apply for an IPO application on Sunday as well but through an online application. But, you need to keep few points in mind before doing that.

How to sell IPO?

You can sell your shares of an IPO through the stockbroker application or website. Let's see what's the simple process to sell the shares you hold.

I want to invest for short time so please let me know which IPO will give positive gain?

Selling the IPO shares on the first day of its listing could get you considerable postive gains. But there is a higher chance for the prices to rise and even fall if you wait for a more extended period.