How is the allotment of shares decided in an NSE IPO?

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HomeAdditionalHow is the allotment of shares decided in an NSE IPO?

The allotment of shares in an NSE (National Stock Exchange) IPO (Initial Public Offering) is a regulated process overseen by the Securities and Exchange Board of India (SEBI). The IPO registrar, in coordination with the stock exchange, determines the final allocation of shares. The results are typically announced 3 to 4 days after the bidding period concludes. Here’s an overview of how the allotment process works:

Allocation Process

  • Oversubscribed IPOs: When the demand for shares exceeds the number of shares offered, SEBI guidelines are followed to ensure a fair distribution. In the Retail Individual Investor (RII) category, a lottery system is used to allocate shares, with each applicant guaranteed at least one lot. This approach helps manage high demand and ensures that no single investor receives more than one lot.
  • Undersubscribed IPOs: If the IPO receives less than 90% of the total subscription, it is considered undersubscribed. In this scenario, the IPO may be canceled, and the funds collected from applicants are returned.
  • Subscription Levels Above 90%: When the subscription exceeds 90%, all valid applicants receive the full number of lots they applied for. This ensures that the demand is adequately met without the need for any lottery.

Allotment Announcement and Transfer

  • Announcement: The IPO registrar announces the allotment results 3 to 4 days after the bidding period ends. Investors can verify their allotment status on the registrar’s website, as well as through the NSE, BSE, CDSL, and NSDL websites.
  • Transfer and Funds: Allocated shares are transferred to investors’ demat accounts one day before the IPO is officially listed on the stock exchange. Unused blocked funds are released by banks following instructions from the registrar.

Investor Strategies

  • Bidding Strategies: Some investors believe that bidding at the cut-off price (the highest price in the IPO price range) may increase the likelihood of allotment. Additionally, applying through multiple accounts is another strategy, though it is important to stay within the limits set by the regulations.
  • Minimum Subscription Requirement: For an IPO to proceed, it must attract applicants committing to at least 90% of the total issue size. For example, if an IPO offers shares worth INR 10 lakhs, it should attract investments totaling at least INR 9 lakhs (90% of the issue size). If the minimum subscription is not met, underwriters may step in to purchase the remaining shares.

Role of Platforms like Share India

  • Application Support: Platforms like Share India offer valuable support to investors by providing detailed information on the IPO application process and allotment results. They help investors track their applications and stay updated on the status of their allotment.
  • Educational Resources: Share India also provides resources and insights into IPO allotment procedures. These resources help investors understand the allotment process better, manage their expectations, and make informed decisions. By offering guidance and clarity on the complexities of share allotment, it assists investors in navigating the IPO market more effectively.

In summary, the allotment of shares in an NSE IPO is determined by a combination of proportionate distribution and lottery systems, depending on the level of oversubscription.