Understanding IPO Allotment and listing Process: A Comprehensive Guide
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When a company goes public, it raises capital by selling shares to the general public through an Initial Public Offering (IPO). However, the allocation of these shares is crucial, especially when the demand exceeds the supply. This is where the IPO allotment process comes into play.
In this blog, we’ll explore how the IPO allotment process works, the different rules for allotment based on investor categories, and share examples to make it easier to understand.
Key Players in IPO Allotment
🔶 Issuer Company: The company issuing shares.
🔶 Registrar to the Issue: The firm responsible for managing the allotment process.
🔶 Stock Exchange: Acts as an intermediary in the IPO process.
🔶 Investors: Individuals and institutional investors applying for shares.
IPO Allotment by Investor Categories
1. Retail Individual Investors (RII)
Retail investors are usually allotted shares in “lots.” A lot refers to a group of shares, and each retail investor is entitled to at least one lot if their application is valid.
Example: A company offers 5 lakh shares to retail investors, with each lot size being 100 shares. This means the maximum number of retail investors who can be allotted shares is 5000 (5,00,000 / 100).
Oversubscription Scenario: If more applications are received than the available shares, the allotment is done via a lottery system, where each winning applicant is allotted one lot.
| Retail Investor Allotment Example | Number of Shares | Lot Size | Number of Retail Applicants | Allotment Process |
| Total shares available | 5,00,000 | 100 | 4500 | Full allotment (100 shares each) |
| Total shares available | 5,00,000 | 100 | 10000 | Lottery system for oversubscription |
| Total shares available | 5,00,000 | 100 | 5500 | Proportionate allotment after one lot each |
2. Non-Institutional Investors (NII)
Non-Institutional Investors are categorized into Small NII (investment between ₹2-10 lakhs) and Big NII (investment above ₹10 lakhs). Shares reserved for NII are split into 1/3rd for Small NII and 2/3rd for Big NII.
🔷 Small NII: Investors with applications between ₹2-10 lakhs.
🔷 Big NII: Investors with applications above ₹10 lakhs.
If the NII category is oversubscribed, the allotment happens proportionally based on the number of shares applied for.
| NII Allotment Example | Category | Reservation | Total Shares Available |
| Small NII | ₹2-10 lakhs | 1/3rd of the reservation for NII category | Proportionate allotment based on demand |
| Big NII | Above ₹10 lakhs | 2/3rd of the reservation for NII category | Proportionate allotment based on demand |
Small NII and Big NII Allotment Process
Proportionate Basis Example: Suppose a Big NII applies for 20,000 shares, and the total available for Big NII is only 10,000 shares. The investor will receive half the shares they applied for, i.e., 10,000 shares.
The allocation between Small NII and Big NII is made separately, but both categories follow a proportionate allocation method when oversubscribed.
| Small NII vs Big NII Example | Total Shares Applied | Over Subscription | Shares Allotted | Allotment Process |
| Small NII | 25,000 | 1.66X | 15,000 | Proportionate to the application size |
| Big NII | 40,000 | 2X | 20,000 | Proportionate to the application size |
3. Qualified Institutional Buyers (QIB)
The QIB category includes mutual funds, financial institutions, and other large entities. In the event of oversubscription, shares are allotted on a proportionate basis.
Example: If a QIB applies for 1,00,000 shares and the total available is only 50,000 shares, the QIB will receive half the number of shares they applied for, i.e., 50,000 shares.
IPO Allotment Process Steps
The IPO allotment process typically follows these steps:
1. Receiving and Validating Applications:
The registrar receives all applications and checks for any errors. Invalid applications are rejected.
2. Grouping Applications by Category:
Applications are grouped based on investor categories, i.e., RII, NII, QIB, etc.
3. Finalizing Basis of Allotment:
The registrar, in consultation with the stock exchange, finalizes the Basis of Allotment and proceeds with share distribution.
4. Communicating Allotment Status:
Investors receive email/SMS notifications about their allotment status.
5. Share Credit and Refunds:
Successful investors receive shares in their Demat accounts, while others get refunds by unblocking their UPI block mandates.
Example to Illustrate Allotment in Different Categories
Let’s consider an IPO where 50 lakh shares are offered and divided among different categories:
🔸Retail Investors (RII): 35% of the issue, i.e., 17.5 lakh shares.
🔸Non-Institutional Investors (NII): 15% of the issue, i.e., 7.5 lakh shares.
🔸Qualified Institutional Buyers (QIB): 50% of the issue, i.e., 25 lakh shares.
Retail Investor Example
| Category | Shares Offered | Applications Received | Allotment Process |
| Retail (RII) | 17.5 lakh | 50 lakh | Lottery system due to oversubscription |
| Non-Institutional (NII) | 7.5 lakh | 10 lakh | Proportionate based on demand |
| Qualified Investors (QIB) | 25 lakh | 22 lakh | Full allotment as demand is lower than the offer |
In the above example, retail investors will be allotted shares via a lottery system, and NIIs will receive shares based on the proportion of shares they applied for compared to the available shares.
Tips to Improve Your IPO Allotment Chances
🔷 Apply in Multiple Accounts:
Applying through multiple Demat accounts (family members) increases your chances.
🔷 Ensure Correct Application Details:
Double-check your PAN, bank, and Demat details to avoid technical rejections.
🔷 Apply for Minimum Lots:
Retail investors should apply for one lot to increase the likelihood of allotment in oversubscribed IPOs.
IPO Listing Timelines (T+3)
| Step | Action | Timeline |
| T (IPO Subscription Closes) | IPO application process ends. Investors can no longer submit bids. | Day 0 (End of Subscription) |
| T+1 (Allotment Finalization) | The company and registrar finalize the Basis of Allotment by 6 PM. | T+1 Day |
| T+2 (Refund/Unblocking) | Refunds are processed for unsuccessful applicants; ASBA amounts are unblocked. | T+2 Day |
| T+3 (Listing on Stock Exchange) | The IPO shares are listed, and trading begins on the stock exchanges (NSE, BSE). | T+3 Day |
Breakdown of the New IPO Timeline
1. Day 0 (T) – IPO Subscription Period Closes:
Once the IPO subscription window closes, no further applications are accepted. The registrar begins verifying the bids.
2. Day 1 (T+1) – Finalization of Allotment:
The registrar, in coordination with the stock exchanges, finalizes the Basis of Allotment (BOA). This includes the verification of applications, validation of successful bids, and determination of the allocation based on demand. The allotment process is finalized by 6 PM on T+1 day.
3. Day 2 (T+2) – Refund or ASBA Unblocking:
Refunds are initiated for investors who did not receive any allotment. If the application was made through ASBA (Application Supported by Blocked Amount), the amount is unblocked from the investor’s bank account. Investors whose bids were unsuccessful will have the full amount refunded.
4. Day 3 (T+3) – Listing of Shares on Stock Exchanges:
The IPO shares are credited to the Demat accounts of successful allottees. Trading of the shares begins on the stock exchanges (NSE, BSE) on T+3 day. The listing price will be determined based on market demand and supply.
Example of the New Timeline
Assume an IPO closes on October 10th (Day 0). The new timeline would look like this:
| Event | Date |
| IPO Subscription Closes | October 10th |
| Allotment Finalization (T+1) | October 11th (by 6 PM) |
| Refunds/Unblocking of Funds (T+2) | October 12th |
| Listing on Stock Exchanges (T+3) | October 13th |
Advantages of the T+3 IPO Listing Process
-> Faster Refunds and Share Allotments:
The T+3 process ensures that refunds are processed quicker and shares are credited to investors’ Demat accounts in a shorter time frame, enhancing liquidity.
-> Quicker Listing:
The T+3 listing timeline allows the shares to be traded sooner, providing early liquidity to both investors and companies.
-> Improved Investor Experience:
The shorter IPO process minimizes the waiting time for investors to find out their allotment status and start trading the shares.
Conclusion
Understanding the IPO allotment and listing process is essential for any investor. Whether you’re a retail investor, an NII, or a QIB, knowing how shares are distributed can help you strategize your applications better. The allotment process, while seemingly complicated, is designed to ensure fairness. Following best practices can increase your chances of receiving shares in highly sought-after IPOs.
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