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“No share allotted in last few IPOs, despite proper application. What am I doing wrong? How does the allotment process work?…aaaa, I am totally confused…

So, if you are feeling the same after the recent frenzy in the IPO market, wherein a lot of initial public issues were subscribed multiple times, especially in the Retail category.

Table1: Recent IPO subscription (Retail Category)

IPO	Retail Category (no. of times)
Happiest Minds	70.94x
Route Mobile	12.67x
CAMS	5,54x
Chemcon	41.15x
UTI	2.32x
Mazagon	35.63x

Let’s deep dive and understand how it works and how Investor can increase its chance of allotment…

First of all, SEBI has defined different categories of Investors and one of it is the Retail Category, Investor applying for less than INR 2 lacs. Also, for every IPO, a lot size (minimum no. of shares) has to be defined and all Investor has to bid for minimum one lot. As per SEBI guidelines, in terms of value, a lot size has to be between INR10k-15k and therefore lot size for each IPO will depend on the offer price of the share. Every Retail Investor has to apply through ASBA route only.

Now, how is the allotment determined?

Scenario1: Retail Category is under subscribed, Investors applied for lesser number of shares than shares offered by the Company. No surprise, Investor gets full allotment.

Scenario2: Retail Category is over subscribed. Investors applied for higher number of shares than shares offered by the Company. Now, it becomes a bit tricky.

As per SEBI guidelines, in case of over-subscription in the Retail category, the maximum number of Retail Investors who can be allotted the minimum bid lot is computed by dividing the total number of equity shares available for allotment to Retail Investor by the minimum bid lot.

Let’s look at an example for better understanding.

For CSB Bank, the minimum bid lot was 75 equity shares. The quota reserved for retail investors in the issue was 18 per cent, or 21,00,906 shares, but it was subscribed 40.98 times, or 8,61,02,400 shares in Retail Category.

There were 9,19,982 retail applications for the issue, but since retail investors in any IPO could not get less than one bid lot (75 shares in this case), only 28,012 shareholders (21,00,906 shares/one lot of 75 shares) could get share allotment. A total of 21,00,900 shares were thus, allotted to all retail bidders in the ratio of 6:197.

So, for every 197 applicants only 6 applicants got 1 lot allotment on a lottery basis. For, Issues subscribed multiple times it’s purely like winning a lottery.

As per SEBI guidelines, the registrar has to publish IPO basis of allotment document within 10 days from the date of listing and basis and ratio of allotment details are provided to the Investor. For recently concluded IPOs Basis of Allotment document is not yet published.

So, how to increase your chance of IPO allotment:

1. Apply from more than 1 account: Application from various family members account will increase the chance of allotment. It’s simple the more lottery tickets you buy, more are the chance of winning one, Investor should not apply from different demat accounts with same PAN number; it will result in rejection of bid.
2. Apply with minimum bids and not maximum: With higher subscription, chances of getting allotment of more than 1 lot are remote. So, better to apply with minimum lot.
3. Select cut-off price: Over subscription means allotment will happen at the cut-off price, so apply with cut-off price.
4. Apply on different dates: Since, it’s a lottery system and application is picked up randomly, chance of allotment increases with spread-across applications.

Stay Safe, Happy Investing and keep trying your luck…

Please share, if you found it useful and informative.

Source: SEBI guidelines, CBS IPO Basis of Allotment document