How IPO shares are allotted, and why some valid bidders get none

Many investors bid for an IPO on time and keep the money ready, only to learn a few days later that they got no shares. The confusion is common because many people do not understand how allotment works. It is neither random nor first-come, first-served. Who gets shares is decided by a fixed process.

It begins with what is available in the market. The list of upcoming IPOs shows which issue is opening soon for subscription, its price band, issue size and subscription dates. Before investing, one has to decide whether the issue suits one's portfolio and risk appetite.

Once bidding opens, an application is placed in one of the investor categories: retail, non-institutional or qualified institutional buyer. Each category has its own allotment rules. Not every application is considered, either. If the demat account number is wrong, the same PAN has been used to apply more than once, or the bid is below the cut-off price, the application is rejected before allotment is calculated.

This is where most people get confused about how the decision is made. If total demand is lower than the number of shares on offer, meaning the issue is undersubscribed, every valid applicant gets the full number of shares applied for. There is no lottery and no cut. But once demand exceeds supply, the arithmetic changes. In an oversubscribed issue, depending on the investor category, shares are either allotted by lottery or distributed proportionately. This is why two people bidding the same amount can end up with very different outcomes.

The category matters also because demand in the retail, NII and QIB segments is not pooled. If one category receives few bids and another is flooded, the unsubscribed portion is sometimes given to the oversubscribed category. QIB shares are the exception: even if they remain unsold, they are not moved elsewhere. This difference explains why a retail application can fare differently from that of a peer applying in another category.

When the registrar finalises everything, it issues the official basis of allotment document. Only after that can the IPO allotment status be checked. Rather than waiting to see whether shares arrive in the demat account, checking the status directly shows clearly whether the allotment was full, partial or nil. It is usually available within three to four days of the bidding closing.

Once the process is understood, it is no longer a puzzle. Looking at upcoming issues before applying, filling in application details correctly to avoid outright rejection, and understanding how much subscription there was in one's own category all affect the chances of allotment. Together they make the process largely predictable, even though the outcome, whether the issue is oversubscribed or not, is not in any single investor's hands.