An initial public offering (IPO) is the process by which a private company offers its shares to the public for the first time. It is a means for a company to raise additional capital by issuing new shares. The company offers its shares for sale through an investment bank that helps determine the initial share price and when to bring the stock to market.
When a company decides to go public, it’s a major event both for the company and investors. The IPO allotment process, in particular, is crucial for investors as it determines who gets how many shares allocated in the public issue.
The IPO allotment process involves determining how many shares will be allocated to retail and institutional investors through a bidding process. The allotment criteria considers factors like the bid price, number of shares applied for and category of investors.
Understanding the IPO allotment process is important for investors to strategize their bids and know the procedure to check allotment status subsequently.
Allotment Process and Basis of Share Allocation
When a company offers its shares to the public through an IPO, the issue is often oversubscribed as demand exceeds supply. The company’s investment bankers have to determine how to allot the limited number of shares on offer to thousands of potential investors.
The allotment of IPO shares is not done on a first-come-first-serve basis. Instead, it is based on a bidding process and certain issue-specific criteria.
One of the primary criteria for IPO share allotment is the bidding price. Investors quoting higher bid prices compared to the floor price or cut-off price set for the issue get preference in allotment. The shares are first allocated to investors who have bid at the highest allowed price band.
Allotment is also based on the category of investors. Certain categories like qualified institutional buyers (QIBs) and non-institutional investors (NIIs) get allotment preference over retail individual investors (RIIs).
Within retail investors too, the allotment can be based on further sub-categories and quota reserved for each. For instance, some shares may be reserved only for employees or shareholders of the company.
Number of Shares Bid For
The number of shares bid for also matters for allotment. Investors applying for a greater number of shares have higher chances of allotment compared to those who apply for minimum lots. This increases the overall subscription received by the issuer.
In case of oversubscription in any investor category, the allotment is finally done through a lottery system. All qualified bidders are assigned a lottery number through a computerized process. The shares are then allotted on a proportionate basis to successful applicants.
When and How to Check IPO Allotment Status
Given the uncertainty involved in the IPO allotment process, checking the status in time is vital for investors. Here is a primer on when and how allotment status can be checked after subscribing to an IPO:
Timeline for Allotment
IPO allotment is done after closure of the offering period as per a prescribed timeline:
- Day 1: Issue Closing Date
- Day 4: Basis of allotment finalization
- Day 5: Refunds to unsuccessful bidders
- Day 6: Credit of shares to demat accounts
So allotment details are generally available starting Day 5 onwards post issue closure.
Online Allotment Status
The easiest way to check IPO allotment status is online through the issue registrar’s website. Applicants can enter their application number, PAN details, DP ID, and Client ID to view their status. The portal will show allotment status as allotted, pending or rejected.
If allotted, the number of shares allotted will also be shown. One can also try portal of their stock broker for checking allotment directly.
In addition to registrar website, the demat account provider also sends an ‘Allotment Advice’ through email or physical copy. This contains complete details on number of shares allotted and the amount to be paid.
Investors should cross-check online status with the allotment advice sent by their DP to confirm IPO share allotment.
Refunds for Rejected Applications
For applications where no shares are allotted, the bid amount is refunded to the investor’s account within the prescribed number of days. This can be checked through the online banking facility. A direct credit of funds indicates rejection of the IPO application.
Payment of Allotted Shares
Knowing your IPO allotment status is only the first step. Based on the status, investors have to complete further actions:
For allotted applications, investors have to make payment towards the shares allotted within the due date provided. Usually, 2-3 days time is given to make payments after successful allotment.
The payment has to be made using the ASBA facility through which the bid amount was blocked. Any delay in payment could lead to forfeiture of allotment.
For rejected applications, no action is required. The registrar automatically unblocks the funds within the stipulated timeline. Investors should keep an eye out for refunds in their bank account in case of non-allotment.
Partly Allotted Applications
In some cases, an investor bid may be partly allotted if the full application cannot be accommodated. Here, payment has to be made for the allocated shares, while the bid amount for the non-allotted portion gets refunded.
Credit of Shares to Demat
The allotted shares are credited to the investor’s demat account only after receipt of full payment by the registrar in eligible cases. So make timely payment once you know your IPO has been allotted to avoid delays in getting shares.
Trading Allotted IPO Shares
Once allotted IPO shares are credited to the demat account, they can be traded after listing:
IPO Listing Date
Shares offered through an IPO are listed on the stock exchanges as per a scheduled date, usually within 6 working days of issue closure. Investors can trade the shares on the exchanges after listing day.
Opening Price on Listing
The opening price of an IPO stock on listing day is determined through pre-open session bids. Based on demand, the shares may list at a premium or discount to the issue price.
Trading IPO Shares Post-listing
Post-listing, investors can place buy or sell orders for the IPO shares just like any other listed stock. One can trade the shares after listing as per requirement through stock brokers.
Open a Trading Account to Buy/Sell IPO Shares
IPO Grey Market Premium
The grey market indicates the expected listing price and investor demand. The grey market premium can be checked before trading starts to make decisions.
Do’s and Don’ts of IPO Application
Here are some key pointers for investors to keep in mind when applying for an IPO:
- Carefully read through prospectus and application form
- Ensure correct details are filled like PAN, DP ID, Client ID etc
- Check if you are eligible for retail quota or any reserved portion
- Bid for the maximum number of shares you can afford
- Keep bid price on upper band of price range
- Don’t borrow money or use unsolicited funds to apply
- Avoid bidding at cut-off price unless risk appetite is high
- Don’t bid just for listing gains or due to hype
- Don’t wait till last day to apply, submit early
The IPO share allotment process is a complex exercise that determines how many shares investors finally get allocated in an issue. Checking allotment status on time is crucial to take further steps like making payments or keeping track of refunds. Investors should use reliable sources to check their IPO allotment status and complete follow-up actions within prescribed timelines.
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