IPO Allotment Process : How Does It Work?

IPO Allotment Process

IPO Allotment Process is an important part of the IPO process. It is a way for companies to distribute their shares to the public as part of their initial public offering (IPO).

A company's initial public offering (IPO) demand is heavily influenced by the grey market premium, also known as the IPO GMP. This is calculated on the basis of interest and activity on the grey market.

This begins informally on the unregulated market after the IPO date and price range have been announced. An IPO's premium is often considered by investors when deciding whether to invest, since it provides insight into the offering's chances of success.

However, the grey market premium can vary greatly and is not a guaranteed predictor of an IPO's performance. A number of factors influence IPO subscription levels, including market conditions, investor sentiment, and overall subscription levels for the IPO.

As such, it should be considered alongside other relevant information and analysis when evaluating an IPO investment opportunity.

What Is The Process Of IPO Allotment?

IPO Allotment is the process by which a company distributes its shares to the public. It happens before a company goes public and it helps in orderly distribution of shares. This is done to avoid any possible confusion or ill-effects that could arise due to over-the-counter (OTC) trading of these shares. Apart from this, it also creates transparency about how many shares each individual has in a company. 

Procedure for Allotment of Shares in IPO – IPO Allotment Process

A company goes public through an IPO, which allows the public to bid on its shares. The bids are submitted and registered online. This process determines the final number of successful bids for the IPO. IPO Allotment process has different scenarios.

The following two scenarios may apply to a company's situation:

  1. The total number of successful bids is less than or equal to the number of shares offered by the company.
  2. The total number of successful bids is more than the number of shares offered by the company.

In the first case, if the total number of bids is less than or equal to the number of shares offered, all applicants will be assigned shares.

In the second case, if the total number of bids is more than the number of shares offered, the Securities and Exchange Board of India (SEBI) requires that at least one lot be allotted to each individual who has applied. This requires more planning for the allotment process.

Assume, 20 investors have applied for an initial public offering (IPO) at the cut-off price, which is the offer price at which the shares are issued to the investors. Each of these investors has placed a bid for a number of shares ranging from 1 to 5.

If the total number of shares to be allotted is 10. A lottery will be conducted by the registrar and only 10 investors who win the lottery will receive shares against their IPO application.

This guide provides an overview of the current IPO allotment process in India. Please note that the rules and regulations governing this process are subject to change, as the regulator, SEBI, regularly updates them to reflect the current market conditions. However, SEBI's commitment to protecting the interests of small investors is likely to remain constant.

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