Reasons for Non-Allotment of Shares in IPO

Introduction

A new investor will have to knock on wood when they first apply for an IPO allotment. Are you planning to participate in an IPO? If yes, make sure your investment in IPOs is in sync with your financial goals and risk appetite.

What is IPO?

IPO is a process where a company offers to sell its shareholding to the general public. The applications will become available online and in assigned banks. It gives everyone a chance to invest in the company at a fair valuation compared to what an investor will have to pay later, depending on its market position.

When a company kick starts an IPO and opens registration online, it goes through two scenarios:

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

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

Additional Read: How to choose the best Demat Account

Each IPO is different in terms of its lot size, price range, etc. And not all investors receive a positive IPO allotment status. There are many times when an investor won’t get an allotment and primarily label it bad luck. Let’s look at some reasons for not getting an allotment:

Invalid Application

Every IPO has a screening process to check for correct information on applications. Here are a few technical reasons why an investor’s application is rejected:

• If the company received multiple applications with the exact PAN details, it would be rejected. Because according to the rule book, in an IPO, you can submit one application per person.
• An investor’s application can be rejected and eliminated if the investor furnishes incorrect details regarding the Demat account number or PAN number.
• In case of a mismatch in names and numbers on PAN cards and bank accounts, an investor’s application will be disregarded.

Large Oversubscription

It holds a computerised lucky draw in a large oversubscription, where the company receives more applications than offered shares. Every applicant gets an equal opportunity to receive an allotment.

Small Oversubscription

Investors can apply for more than one lot. First, they will receive one lot, according to Sebi guidelines. Then the remaining lots of the company will be proportionately distributed amongst investors who applied for more than one lot.

The bid price is lower than the issue price

If the company declares a higher issue price than the amount an investor bids on the application, the investor will not receive an allotment.

Conclusion

To maximise chances of receiving IPO allotments, investors must double-check their application, consider applying for a cut off-price, and use multiple Demat accounts in case of oversubscribed IPOs.

Additional Read: Dos and don’ts for a Demat Account

Disclaimer

ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.  Please note, IPO related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.