An Initial Public Offering (IPO) is the first sale of shares to the public by a private company. This process helps the companies to raise capital by providing an opportunity to public investors to purchase a stake in the company. The IPOs find a major listing and trading platform in the National Stock Exchange (NSE). One of the key factors determining the performance of an IPO is the allotment of shares, which concerns itself with who is buying how many shares.
What Is IPO Subscription?
An IPO subscription is a process during which investors interested in buying shares in the IPO manifest that interest. Investors can apply for shares through many mediums, like banks, stockbrokers, and online platforms. Each investor will apply for a certain number of shares within the set price range.
How Will Shares Be Allotted In An IPO?
These two methods give the IPO share specification for the allotment: a proportional allotment method or a lottery allotment method. Both aim at giving fair allotment for shares; only the choice between the two depends on the extent of oversubscription of the IPO.
Proportional Allotment
It means assigning shares to investors based on how many shares they bid for out of the total demand for the shares. For example, if there are 10 bidders for 100 shares, one bidder trying to win shares for 100 shares would expect to receive shares for maybe 10 or whatever number is required for the total oversubscription.
Lottery-based Allotment
In case of heavy oversubscription, this demand is far beyond the supply, so it is stressed that a lottery system is in practice. This means the shares are allocated randomly, with every investor having an equal probability of getting allotted shares, no matter how many shares they applied for. The above-mentioned lottery system comes into play during extreme subscription, ensuring that no one investor would have a relative edge over others.
What Determines the Cut-Off Price?
The cut-off price is the final price at which shares are allotted to investors. It is mostly determined based on the demand generated in the IPO and the price range declared by the company. In other words, if the IPO is to be oversubscribed, the cut-off price shall be decidedly higher than the price band.
Once the subscription period is over, the cut-off price will be fixed by the issuing company and the stock exchange. The allotment ratio is the ratio based solely on the holding applied invested amount and amount required according to overall demand for shares.
Checking IPO Allotment Status
Once the allotment procedure is completed, investors can check their IPO allotment status to see if they have been allotted shares or not. Allotment status is usually published on the website of a stock exchange or that of a registrar. Investors can check their application status by entering their application number, PAN number, or Demat account details.
In some instances, allotment status may also be communicated through an SMS or email from the company or the registrar. If shares have been allotted, they are transferred to the Demat account of the investor. If no shares are allotted, the investor’s account is credited back.
What Happens After Allotment?
If the investor is not allotted shares, the money invested is refunded to the investor’s bank account within a few days after the allotment process is completed. Investors can check their NSE IPO allotment status to confirm whether shares have been allotted or a refund has been initiated. In case of successful allotment, the shares are credited to the investor’s Demat account, and they may choose to hold them or sell them once the IPO is listed.
After the allotment process is finalized, the company announces the IPO listing date. On the listing day, the shares become available for trading on the National Stock Exchange (NSE), allowing investors to buy, sell, or hold their shares based on their investment strategy.
Conclusion
The allotment of shares in an IPO on the NSE constitutes an important step that decides who gets the chance to buy shares and how many shares he gets. The process is influenced largely by the level of IPO subscription, the method of allotment being used, and finally, the cut-off price determined. Understanding the allotment process will go a great way in ensuring that investors have a clearer idea of how their applications may be treated, together with methods for checking allotment status.
