Nowadays, an IPO is considered a massive event for any company looking to raise capital after stabilizing the business. It is a process where a private company offers its ownership (stocks) to the public. This is done to increase capital for various reasons, such as reducing debt, business expansion, or shareholders' desire to sell their ownership. One can know the purpose of a particular company issuing IPO at Red Herring Prospectus (RHP), which is available on the SEBI website. This can also better explain a person as to how the capital raised through IPO will be used.
Before applying for an IPO, one needs to have a Demat account, trading account and the required amount for the bid. The duration of an IPO is generally 3 days, but it can last for 10 days if the company wants it to. It is offered in the primary market, which after 7 days of allotment, gets listed in the exchange. Most investors look forward to an IPO because of the listing gain, which is the difference between the issue price and the listing price. The company chooses the investment bank, which in turn decides the issue price and lot size.
The initiation of the application process is straightforward.. It can be done via online/offline modes, and one's account should have the required funds since the regulators have made the "Blocked amount facility" a compulsion.
Allotments happen behind the curtains and have quotas. Some of them are as follows:
Qualified institutional investors (QII):
They can be allotted up to 50%. Commercial banks, public financial institutions, mutual funds, and foreign portfolio investors registered with SEBI fall in this category.
High net-worth individuals (HNIs):
Allotment should have at least 15% reserved for this category. Investors looking to invest more than Rs 2,00,000 are categorized as HNIs. They are not allowed to use the cut-off price feature while bidding.
Minimum 35% is reserved for this category.
For the retail investors, allotment depends on the number of valid bids submitted, and they may not get what they had requested because of high demand. After the IPO bidding is closed, it takes about 7 days for the registrar of the IPO to finish the distribution. There can be 2 different cases during the allotment process, which are:
Under subscription - The total number of bids is less than shares issued:
In this case, the registrar won't intervene, and every applicant will get the lot they requested. However, there is a catch, if the subscription is less than 90%, the IPO will fail as per SEBI guidelines, and the money will be refunded.
Oversubscription: Total number of bids is greater than the shares offered:
This requires the intervention of the registrar. If the company provides 1,00,000 shares with a minimum lot size of 10, then the maximum number of investors who will get at least 1 lot is 10,000. Depending on the margin of oversubscription, there can be 2 cases:
a. Small Margin: If there are less than 10,000 applicants, but the requested lots are more than the lots offered, every applicant will receive 1 lot, and the remaining shares will be distributed proportionally to the number of lots requested by the applicants.
b. Large Margin: If there are more than 10,000 applicants, the registrar may distribute via lucky draw.
One can check the allotment status through the registrar's website or the exchange (mostly BSE). One will need the PAN and DPID/Client ID number or the bid application number for the IPO allotment status check.
How to check IPO allotment at BSE website?
1] Login at the direct BSE link — bseindia.com/investors/appli_check.aspx
2] From 'Equity', select name of the company for which you have applied for IPO in the 'Issue Name'
3] Enter your application number, PAN number and search
One can follow similar steps on the registrar website for the particular company. Once the whole procedure is done, the shares are listed on the exchange, i.e. the secondary market for trade