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.
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.
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.
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.
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.