How are shares allotted if an IPO is oversubscribed?

An IPO is said to be oversubscribed when the total number of shares that investors want to purchase is higher than the number of shares available for allotment. The extent of oversubscription is expressed as a multiple. SEBI mandates that every individual who applies for an IPO should be allotted at least one lot.

Example of Oversubscription:

IRCTC's IPO offers shares to retail investors. In response to this, investors applied for shares. The issue offers a fixed number of shares of 20,000. It is oversubscribed 40 times over. That is, the demand is for 80,000 shares (vs. the available 20,000 shares).

  • Retail Individuals can place bids up to Rs. 2 lakhs. The number of retail investors who will receive an allotment is determined by dividing the total number of shares by the minimum lot size. This can result in two scenarios: 
    • Small Oversubscription- One lot is given to each applicant. Remaining shares are distributed proportionally among those who have bid for more than one lot.
    • Large Oversubscription- Allotment will be conducted by drawing lots. This lottery will be computerized and all applicants may not receive allotment.

  • High Networth Individuals (HNI) can place bids above Rs. 2 lakhs. Oversubscriptions in this category are allotted in proportion to applications.

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