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Explore the common reasons for non-allotment of IPO shares and discover effective solutions to increase your chances of receiving IPO allotments.
When applying for shares in an Initial Public Offering (IPO), many investors anticipate receiving an allotment of shares. However, it is not uncommon for applicants to find that their efforts to secure shares in an IPO are unsuccessful. Understanding the reasons behind non-allotment and how to address them can help investors manage their expectations and improve their chances in future IPOs.
This article explores the common reasons why IPO shares may not be allotted, outlines the steps to check your IPO allotment status, and offers practical solutions to help you increase the likelihood of receiving shares in an IPO.
To understand the reasons for non-allotment, it's important to first grasp what IPO allotment is and how the process works.
The IPO allotment process is the mechanism by which the shares of a company offered to the public are distributed to investors. When an IPO is launched, the company allocates a portion of the total shares to various categories of investors, such as retail investors, Qualified Institutional Buyers (QIBs), and High Net-Worth Individuals (HNIs). The number of shares allocated is determined by the number of applications received, the demand for shares, and the overall subscription of the IPO.
Retail Investors: These are individual investors who apply for IPO shares within the prescribed limit, typically up to ₹2 lakh per application.
Qualified Institutional Buyers (QIBs): Institutional investors such as banks, mutual funds, and insurance companies.
High Net-Worth Individuals (HNIs): Investors who apply for a larger quantity of shares than retail investors.
The allotment is typically done through a lottery system if the IPO is over-subscribed, as is often the case with high-demand IPOs. If the demand is low, retail investors may receive a full allotment.
Full Allotment: When the entire number of shares applied for by an investor is allotted. This generally happens when the IPO is under-subscribed or there is enough supply of shares to meet the demand.
Partial Allotment: When only a portion of the applied shares is allotted due to the over-subscription of the IPO. This is more common in popular IPOs where the number of applications exceeds the number of shares available.
Several factors can contribute to the non-allotment of IPO shares. These range from issues related to the IPO’s subscription status to errors in the application process. Here are the most common reasons why an investor might not receive an IPO allotment:
One of the most common reasons for non-allotment is over-subscription. When the demand for shares in an IPO exceeds the number of shares available, the allotment process becomes highly competitive. In such cases, the IPO issuer and the lead manager use a lottery system to allocate shares, and there’s no guarantee that all applicants will receive their desired number of shares. If you apply in a highly subscribed IPO, the chances of non-allotment increase, especially if you apply for fewer shares.
In IPOs that are heavily subscribed, retail investors typically receive only a small portion of the total available shares. If the demand from institutional investors and high-net-worth individuals is high, retail investors may only receive a partial allotment or no allotment at all, depending on the subscription ratios.
Retail investors may also face challenges if they apply for IPOs with low or limited allotment thresholds. Even in partial allotment scenarios, the number of shares allotted may be less than what was requested, leading to non-allotment in some cases.
The number of shares applied for can influence the likelihood of receiving an allotment. Larger applications tend to have a higher chance of receiving some allotment, especially in under-subscribed IPOs. However, when the IPO is over-subscribed, the chances of receiving allotment are reduced for small applications, as larger applications are more likely to be considered first. In such cases, applicants may receive a smaller number of shares than initially requested.
If there are errors in the IPO application—such as incorrect details, missing documents, insufficient funds, or issues with Know Your Customer (KYC) compliance—your application may be rejected. Mistakes in the application process are one of the primary causes of non-allotment. Investors should double-check their application forms and ensure that all required details are provided correctly before submission.
Regulatory or compliance issues may also result in non-allotment. Some IPOs may have specific conditions, such as restrictions on the maximum number of shares an investor can apply for, or eligibility conditions that must be met. Investors who do not meet these conditions may not be allotted shares. Additionally, some IPOs may restrict certain categories of investors from applying, which could also lead to non-allotment.
If you have applied for an IPO and are wondering whether you’ve been allotted shares, there are several ways to check your allotment status.
Each IPO has a designated registrar that manages the allotment process. The registrar’s website provides a facility to check the allotment status by entering your application number or PAN details.
Common IPO registrars in India include KFintech and Link Intime.
Visit the registrar’s website, find the relevant IPO listing, and enter the required information to check the status.
Investors can also check their IPO allotment status on the official websites of the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE).
Log on to the official NSE or BSE website.
Locate the IPO section and enter your application number or PAN details.
The website will display whether or not you have been allotted shares.
While non-allotment of IPO shares can be disappointing, there are steps you can take to improve your chances in future IPOs and other solutions you can explore.
Applying through multiple demat accounts, either in your name or through family members, may increase your chances of receiving an IPO allotment. By doing so, you may apply for more shares, increasing the likelihood of receiving at least a partial allotment. However, make sure you adhere to the regulatory guidelines regarding multiple applications, as non-compliance may result in disqualification.
Before applying for an IPO, keep track of the subscription status. If an IPO is under-subscribed, it increases the likelihood of full allotment. Conversely, highly subscribed IPOs may have limited chances of full or even partial allotment. Monitoring the IPO’s subscription can help you make informed decisions about which IPOs to apply for.
While high-profile IPOs from well-known companies often attract a lot of attention, smaller, less-publicised IPOs may face less competition. These IPOs may provide higher chances of allotment, especially if the demand is low. You can apply for these IPOs to increase your chances of receiving shares.
Ensure that all the details provided in your IPO application are correct, including KYC details, bank account information, and payment details. Small mistakes can result in the rejection of your application, so double-check everything before submission.
If your IPO application does not receive allotment, it’s important to know what to expect and how to proceed.
In the event that you do not receive an allotment, the money invested in the IPO application will be refunded. The refund process typically takes a few days, and you will receive your money back in the account linked to your demat account. If you applied via UPI, the refund will also be processed through UPI.
Non-allotment can be disheartening, but it’s important to explore other investment opportunities. You can consider investing in mutual funds, exchange-traded funds (ETFs), or secondary market investments.
One way to stay engaged with the market is to track upcoming IPOs and apply again. Keep an eye on new offerings and make adjustments to your application strategy to increase your chances in the future.
Understanding the reasons for non-allotment of IPO shares and taking proactive steps can significantly improve your chances of securing shares in future IPOs. From the importance of application accuracy to exploring smaller IPOs and diversifying your demat account applications, there are multiple strategies you can use to increase your chances.
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
Securities and Exchange Board of India (SEBI): https://www.sebi.gov.in/
National Stock Exchange (NSE): https://www.nseindia.com/
Bombay Stock Exchange (BSE): https://www.bseindia.com/
Non-allotment can occur due to over-subscription, incorrect application details, or an application for too few shares.
You can check your IPO allotment status through the registrar’s website or the NSE/BSE website.
Consider applying for other IPOs, monitor upcoming IPOs, and ensure accuracy in future applications.
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