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Understanding the impact of IPO subscription levels is essential for investors navigating the public offering landscape. When a company launches an Initial Public Offering (IPO), it invites investors to subscribe to its shares. The level of investor interest is measured as subscription which can significantly influence the IPO’s success, the allotment of shares, and the company’s listing trajectory. This guide explores what happens when an IPO faces low subscription and how it affects both the issuer and investors.
IPO subscription refers to the number of shares applied for by investors relative to the number of shares offered by the company. If a company issues 1 Crore shares and investors apply for 1.5 Crore shares, the IPO is said to be subscribed 1.5 times.
Formula for Subscription Rate:
Subscription Rate = (Total shares applied / Total shares offered)
IPO shares are typically allocated to different categories of investors:
Qualified Institutional Buyers (QIBs)
Non-Institutional Investors (NIIs)
Retail Individual Investors (RIIs)
Each category has its quota, and the overall subscription status is a reflection of interest across these groups.
Subscription status is released daily during the IPO window (typically 3 days) and is reported as a multiple:
Undersubscribed: Less than 1x (e.g., 0.7x means only 70% subscribed)
Fully subscribed: 1x
Oversubscribed: More than 1x
IPO subscription types refer to the categories of investors who apply for shares during an Initial Public Offering (IPO) and the level of demand for those shares. The main types of IPO subscriptions are:
Retail Investors: Individual investors who apply for shares through their Demat accounts, typically investing smaller amounts (up to ₹2 lakh as per SEBI rules). Retail investors are allotted shares from the retail portion of the IPO. If demand exceeds supply, shares are allocated proportionally or by lottery.
Qualified Institutional Buyers (QIBs): Large institutional investors such as mutual funds, insurance companies, and foreign portfolio investors. QIBs are allotted a significant portion of shares, and in case of oversubscription, shares are distributed proportionally among them. Merchant bankers allocate shares to QIBs at their discretion.
Non-Institutional Investors (NIIs) or High Net-Worth Individuals (HNIs): Wealthy individual investors who invest amounts above ₹2 lakh but are not classified as institutional buyers. They participate with higher bid values and receive proportional allotments if the IPO is oversubscribed.
Oversubscribed IPO: When the number of bids exceeds the number of shares offered, indicating demand is greater than supply. This is generally a positive sign for the company and can lead to premium listing and opportunities to raise more capital.
Undersubscribed IPO: When the number of bids is less than the shares offered, indicating lower demand.
The IPO subscription process involves investors submitting bids through brokers or banks during the subscription period, which typically lasts 3-7 days. After the subscription closes, shares are allotted based on demand and category-specific rules, with refunds issued for unsuccessful bids.
In summary, IPO subscription types are primarily categorized by investor class—Retail, QIBs, and NIIs/HNIs—and by the subscription status—oversubscribed or undersubscribed—reflecting market demand for the IPO shares
Different categories of investors bid at different stages. QIBs typically bid on the final day of the issue period, while retail and NII investors tend to participate earlier. Early trends can influence others’ participation.
Anchor investors, usually large institutions, invest before the IPO opens for the public. Anchor investor participation is seen by some market participants as a sign of institutional interest, though it does not guarantee broader success.
Initial demand can create momentum or hesitation among retail and NII investors. High early demand sometimes leads to oversubscription by the close of the window.
Sometimes, different investor categories subscribe at different levels. For example, QIBs may oversubscribe while RIIs underperform.
SEBI allows partial redistribution of unsubscribed quotas across categories, especially from RIIs or NIIs to QIBs, subject to certain thresholds and proportionality.
In a book-building IPO, investors bid within a price band, and the final price is determined based on demand. In a fixed price IPO, the price is predetermined. Book-building often yields better subscription outcomes due to market-driven pricing.
SEBI monitors IPOs in real time through the stock exchanges. In cases of poor response, SEBI can request additional disclosures, halt proceedings, or advise on re-pricing and extensions.
When an IPO is withdrawn or postponed, companies may:
Launch a rights issue
Seek private equity or venture capital funding
Refile the IPO with revised terms after cooling-off periods
These options help companies raise capital without completely abandoning their public issue plans.
Grey Market Premium (GMP) refers to unofficial premium/discount traded on expected listing price. A high GMP doesn’t always correlate with high subscription, and vice versa. Relying solely on GMP without understanding fundamentals can be misleading.
Low subscriptions may be influenced by:
Herd mentality: Investors wait for others to show interest before subscribing.
Recency bias: Recent IPO failures may discourage fresh participation.
Information asymmetry: Limited understanding of company fundamentals can suppress interest.
When an IPO receives fewer bids than the number of shares offered, it is considered undersubscribed. As per SEBI norms:
If the IPO is underwritten, the underwriters are required to purchase the unsubscribed portion.
All valid applicants usually receive full allotment.
In case of severe undersubscription and absence of underwriting, the IPO may be withdrawn.
According to SEBI regulations, for a public issue to be considered successful:
At least 90% of the net offer must be subscribed.
If this condition is not met, the IPO is cancelled and application money is refunded.
Underwriters step in to guarantee the issue by committing to buy the shares that remain unsubscribed. This mechanism:
Ensures funding for the issuer
Protects investor confidence
Prevents last-minute withdrawal of the issue
A low subscription rate may force the issuing company to:
Extend the IPO window (if permitted)
Re-evaluate pricing
Delay listing
Withdraw the offer entirely
If an IPO just manages to scrape through or if the allotment is mostly fulfilled by underwriters, the stock may list at or below the issue price. This can result in:
Weak listing gains
Lower trading volumes
Negative sentiment in the secondary market
A lukewarm response can influence how investors perceive the company post-listing. It may:
Affect brand reputation
Lead to negative media coverage
Delay future capital-raising efforts
Weak financials
Lack of growth story
Corporate governance issues
Unfavourable sector exposure
Volatile market trends
Rising interest rates
Economic uncertainty
Overvaluation can lead to poor retail and institutional participation. Investors tend to stay away if they feel the issue price doesn’t justify the company’s fundamentals.
Low subscription in an IPO is more than just a numeric signal. It reflects investor sentiment, market conditions, and perceived valuation. For the issuing company, it may mean delayed listing or dependence on underwriters. For investors, it reduces the chance of competitive allotment but may also indicate underlying risks. Understanding how IPO subscriptions work helps investors evaluate upcoming public offerings with better clarity and manage expectations around allotment and listing outcomes.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Sources
SEBI
NSE India
BSE India
Draft Red Herring Prospectuses - SEBI Filings
Business news portals: Moneycontrol, Economic Times, Livemint (for case studies)
If an IPO is subscribed below 90%, it is withdrawn and the application money is refunded. If underwritten, underwriters purchase the remaining shares.
Only if the IPO meets the minimum 90% subscription rule. Otherwise, it is cancelled.
It may delay listing or reduce the post-IPO valuation, potentially impacting future funding and investor perception.
Yes. In undersubscribed IPOs, valid applications typically receive full allotment.
Yes, SEBI allows extensions in certain cases, especially if the response is low and the issue is not closed.
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Posted on 18 Aug
Geetanjali Lachke
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