Answer By law4u team
If you didn’t receive an allotment in an IPO despite applying, there could be several reasons behind this. Here are the key factors that influence the IPO allotment process:
1. Oversubscription:
Oversubscription occurs when the demand for shares exceeds the number of shares offered in the IPO. For example, if the IPO offers 1 million shares but investors apply for 5 million shares, the issue is oversubscribed by 5 times. In such cases, the allotment is typically done on a pro-rata basis, meaning that investors may only receive a portion of the shares they applied for. If you applied for a large number of shares in an oversubscribed IPO, you may not receive any allotment at all, especially if the allotment ratio is low.
2. Allotment Ratio:
The allotment ratio is the proportion of shares allotted to each investor. In oversubscribed IPOs, the allotment ratio tends to be lower. For example, if an IPO is oversubscribed by 10 times and you applied for 100 shares, you may only receive 10 shares, or in some cases, none at all. Retail investors (small investors) often have a lower chance of receiving full allotments compared to institutional investors, who usually have a larger share of the overall allotment.
3. Lottery System:
In some IPOs, especially when demand is exceptionally high, companies may use a lottery system for allotting shares. This is usually applicable to retail investors (those applying for shares in small lots). If you applied through the lottery system, there is a chance you simply didn’t win the lottery for allotment.
4. Application in Multiple Accounts:
If you applied for an IPO through multiple Demat accounts or using multiple applications under the same name, it could be considered fraudulent behavior by the exchanges. This may lead to the rejection of your application or non-allotment.
5. Improper or Incomplete Application:
Incomplete applications or those with incorrect details (e.g., wrong bank account details, missing KYC) can lead to non-allotment. Ensure that your application is properly filled out and that you meet all requirements.
6. Minimum Application Lot Size:
IPOs typically have a minimum lot size that must be applied for, such as 10 or 50 shares. If you applied for a quantity less than the minimum required lot size, your application may be rejected outright, resulting in no allotment.
7. Investor Category:
Depending on the category of investors, allotments can vary:
- Retail Investors: If the IPO is oversubscribed in the retail category, the allotment may be lower.
- Qualified Institutional Buyers (QIBs) and Non-Institutional Investors (NIIs): These investors often have a better chance of getting an allotment compared to retail investors in certain cases, as a larger portion of shares are typically allotted to institutional investors.
Example:
Let’s say an IPO offers 1 million shares, and the demand is 10 million shares from retail investors alone, resulting in 10 times oversubscription. If you applied for 100 shares, and the allotment ratio is 10%, you would receive only 10 shares (a reduced allotment). In some cases, if the allotment ratio is very low or oversubscription is extremely high, you may not receive any shares at all.
8. Listing Day Impact:
While not directly related to the allotment process, market demand and investor sentiment on the listing day can affect your interest in an IPO. Even if you don’t receive an allotment, you may still choose to buy shares of the company from the open market after it lists.
Conclusion:
If you didn’t receive an allotment in an IPO, it could be due to factors such as oversubscription, low allotment ratios, or the use of a lottery system. It’s also possible that your application was incomplete or failed to meet the necessary criteria. The key takeaway is that in oversubscribed IPOs, especially those that are highly anticipated, not all investors will receive the allotment they applied for.
