Basis of Allotment

Introduction

When companies go public through an Initial Public Offering (IPO), they issue shares to raise capital from the public. However, due to high demand, the number of applications often exceeds the shares available. This is where the Basis of Allotment comes in. This mechanism determines how the system distributes shares among investors, ensuring a fair and transparent allocation process. For IPO investors, understanding the basis of allotment is crucial to track their IPO allotment status, check their allotment results, and grasp the process used to decide who receives shares.

This guide explains the Basis of Allotment in detail, covering its types, process, and how to check your IPO allotment status.

What is Basis of Allotment?

The registrar of an IPO uses the Basis of Allotment as a set of rules and guidelines to allocate shares to investors when the IPO is oversubscribed. This allotment process is essential for managing IPO subscription levels and providing a fair allocation to all investor categories. The authorities finalize and publish the allotment details, allowing investors to check their IPO allotment status and see how shares were distributed across categories.

For instance, when an IPO attracts high interest, investors may oversubscribe it several times, meaning demand exceeds the available shares by multiple folds. In this scenario, the Basis of Allotment explains how the system divides these shares among applicants in proportion to demand and according to predefined criteria.

Types of Basis of Allotment in IPOs

The subscription level of the IPO determines the Basis of Allotment, as it directly impacts how the system distributes shares among investors. There are three common types of allotment basis:

Proportionate Allotment:

This method allots shares in proportion to the demand within each investor category. For example, if an investor applies for 10 shares and the IPO oversubscribes two times, the system may allocate only 5 shares to them.

Lottery-Based Allotment:

For IPOs with extreme oversubscription, where individual applications exceed the available shares, the authorities may use a lottery or random selection method. In this scenario, each applicant has an equal chance of receiving shares, regardless of their subscription amount.

Firm Allotment:

Authorities often use firm allotment for anchor investors or Qualified Institutional Buyers (QIBs), providing them with a fixed allocation of shares in an IPO. This method is usually not applicable for retail investors, who instead rely on proportionate or lottery-based allotment.

IPO Subscription Status and Allotment Process

Understanding the subscription status of an IPO helps gauge the likelihood of receiving shares and the potential for oversubscription. Investors can view subscription data on the websites of stock exchanges like NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). The IPO subscription status displays the demand across different investor categories, such as:

• Qualified Institutional Buyers (QIBs): Large entities like mutual funds and insurance companies.
• Non-Institutional Investors (NIIs): High net-worth individuals who apply for shares above a certain limit.
• Retail Individual Investors (RIIs): Individual investors applying for smaller quantities of shares.
• Employee and Shareholder Quotas: Specific shares set aside for employees or existing shareholders of the company.

The Allotment Process

1. Closing of IPO and Subscription Analysis: After the IPO subscription period ends, the registrar compiles subscription data to determine the demand level.
2. Category-wise Allocation: Each category (QIB, NII, and RII) receives shares based on predetermined quotas. If the category is oversubscribed, the basis of allotment rules is applied.
3. Finalization of Allotment: The registrar applies the Basis of Allotment guidelines to finalize who receives shares and in what quantity.
4. Announcement of Allotment Status: After completing the allotment process, authorities publish the IPO allotment status on the websites of NSE, BSE, and the registrar’s official site. Investors can check their allotment status using their application number or PAN.

How to Check IPO Allotment Status

Checking your IPO allotment status is simple and can be done online. Here’s how:

Visit the BSE or NSE Website:

• Go to the BSE website and select “Equity” under the IPO Allotment Status section. Enter your application number, PAN, and the IPO name.
• Alternatively, visit the NSE website, choose the “IPO” section, and provide the required details.

Registrar’s Website:

IPO registrars like Link Intime and KFin Technologies handle the IPO allotment process and publish allotment details on their websites. Investors can check their IPO allotment status by visiting the registrar’s website and entering their PAN, application number, or DP ID.

Trading Platform or Broker:

Many brokers provide IPO allotment status on their trading platforms. Log into your broker’s platform and go to the IPO section to check your allotment.

NSE and BSE IPO Allotment Status

For NSE and BSE IPO allotment status, investors can use the official websites of these exchanges to check the IPO’s status. Both exchanges offer quick access to IPO data, allowing users to view subscription details, allotment status, and the date of listing. NSE and BSE IPO status sections allow you to track allotment updates with ease, helping you stay informed about your investment.

IPO Listing Today: When and Where?

After the IPO allotment process, the company lists its shares on stock exchanges, usually within a week of the allotment announcement. Investors can view the date and time of the IPO listing on NSE and BSE websites under “IPO listing today.” This is when shares are available for trading, and investors who received allotments can start trading on the listing day.

You may also want to know ASBA in IPOs

Factors Influencing the Basis of Allotment

Several factors impact the Basis of Allotment, including:

• Oversubscription Level: Higher subscription levels increase competition, resulting in proportionate or lottery-based allotment.
• Investor Category: Retail, institutional, and non-institutional investors each have separate allotment ratios.
• Allotment Rules for Retail Investors: Undersubscribed IPOs typically favor retail investors, while oversubscribed IPOs may use a lottery to ensure fair distribution.

These factors work together to ensure a transparent and balanced allotment process.

Importance of the Basis of Allotment

The Basis of Allotment serves several crucial functions in the IPO process:

1. Fair Distribution of Shares: It helps prevent favoritism and ensures a fair allocation.
2. Enhances Transparency: The process is regulated and overseen by SEBI, which ensures a standard process is followed.
3. Informed Decision-Making: By understanding how shares are allocated, investors can make more informed investment decisions.

Conclusion

The Basis of Allotment is a critical aspect of the IPO process, especially in the case of oversubscription. It ensures a fair distribution of shares among various investor categories while maintaining transparency and efficiency. Understanding this process allows investors to track their IPO allotment status, assess their chances in oversubscribed IPOs, and make informed decisions.

Whether you’re a retail investor or an institutional buyer, knowing how the Basis of Allotment works will help you navigate the IPO market more effectively and make the most out of your investments.