Reasons for Non-Allotment of Shares in Oversubscribed IPOs

Initial Public Offerings (IPOs) often generate significant interest from retail investors in India, especially when market sentiment is optimistic. In the case of popular IPOs, demand frequently exceeds supply, resulting in an oversubscription. Many investors find themselves disappointed when they do not receive any shares, despite applying on time and with the correct documentation. This article explores the most common reasons behind non-allotment of shares in oversubscribed IPOs.

Oversubscription occurs when the total number of shares applied for by investors exceeds the number of shares offered by the company. This situation leads to a lottery-based allocation process, particularly in the retail investor category.

The degree of oversubscription can impact how the shares are allocated across categories such as retail individual investors (RIIs), non-institutional investors (NIIs), and qualified institutional buyers (QIBs).

Here’s how allotment typically works when an IPO receives excess applications:

Proportional Allotment for QIBs and NIIs

In the case of institutional and high net-worth investor categories, shares are often allocated on a proportionate basis, depending on how much they have applied for.

Lottery System for Retail Investors

Retail investors usually face a lottery system when the number of valid applications exceeds the available number of lots. This method ensures fairness and transparency but does not guarantee allotment even if all steps are correctly followed.

Many investors apply for IPOs and still do not receive shares. Below are the primary reasons:

Oversubscription in Retail Category

When the number of applications in the retail category far exceeds the number of available lots, the allotment is made through a lucky draw. Those not selected in the draw receive no shares.

Technical Rejection of Application

Applications can be rejected for technical reasons such as:

• Incorrect PAN details
  

• Mismatch in name between PAN and Demat account
  

• Incomplete or incorrect application form
  

• Multiple applications from the same PAN in the same category
  

Insufficient Funds in Bank Account

If the investor’s bank account does not have sufficient balance when the ASBA (Application Supported by Blocked Amount) process attempts to block the funds, the application may be rejected.

Multiple Applications from the Same PAN

Submitting multiple applications in the retail category using the same PAN leads to automatic disqualification of all applications under SEBI guidelines.

Cut-Off Price Mismatch

Retail investors selecting a lower bid price instead of the "cut-off price" may be at risk of not getting any shares if the final issue price is higher than their bid.

Although allotment in oversubscribed IPOs is not guaranteed, certain practices may increase the likelihood:

Apply Through a Single PAN and Demat

Ensure only one application is submitted per PAN in the retail category.

Opt for the Cut-Off Price

This increases the chances of eligibility as the investor agrees to subscribe at the final price decided.

Maintain Sufficient Bank Balance

Always ensure that your bank account linked to ASBA has a sufficient balance until the mandate is released or shares are credited.

If shares are not allotted, investors get the blocked amount unblocked or refunded, and no financial loss is incurred. However, repeated non-allotments can be discouraging for new investors and may require diversification in investment strategies.

IPO investing comes with its own set of challenges, especially when dealing with oversubscription. While the allotment process is designed to be fair and compliant with SEBI regulations, it is still influenced by chance in oversubscribed scenarios. Understanding these reasons can help investors avoid common mistakes and improve their chances in future IPOs.

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.