Standards
The IPO allotment is managed by the company’s registrar and depends on the number of shares offered and valid bids received at or above the cut-off price. If one category is undersubscribed, it can be adjusted with oversubscription from another category. However, any share not subscribed in the QUALIFICATION The category (qualified institutional buyers) cannot be used for other categories. Approximately 50% of the shares are allocated to QIB, 35% is reserved for retail investorsand 15% for INI.
Method
The way shares are allocated depends on the type of investor and the level of subscription. For an IPO to be successful, it must receive a minimum subscription of 90%.
Allocation to Retail Individual Investors (RII)
The number of retail investors who can receive shares is determined by dividing the total shares available for retail trading by the lot size. A lot is a specified number of shares, usually valued at around INR 15,000. For example, if 500,000 shares are reserved for retail trading in an IPO and the lot size is 10 shares, then the maximum number of retail investors who can receive shares is 50,000. The retail investor (RII) is allocated at least one lot of shares.
Award process
If the retail category does not have enough subscribers, all applicants will receive the full allocation. If the number of retail applications exceeds the maximum number of retail investors, shares are allocated through a computerized lottery system and each winning applicant receives a maximum of one lot. If 1,000 investors apply for 550,000 shares, but only 500,000 shares are available, a lottery system is used to determine who gets the shares. The NII category is divided into two groups: those who invest between ₹2 lakh and ₹10 lakh, and those who invest more than Rs 10 lakh. One third of the reserved shares go to the first group, while two thirds to the second group. If the NII category is undersubscribed, all investors will receive the full allocation. In case of oversubscription, each NII investor will be allocated at least one lot, based on the minimum order size. If there are any shares left after this, they will be allocated pro rata. Surplus shares in the NII category may be used to meet excess demand in other categories.
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