Ipo Allotment Process In India

Ipo allotment process in india

Ipo allotment process in india

If the company issuing the IPO doesn’t oversubscribe their shares in RII Category than full allotment is done to all applicants. If the IPO is oversubscribed in RII category, the allotment to each retail investor will not be less than minimum Bid Lot, subject to the number of Equity Shares available in the Retail Portion.

For instance, if the IPO subscribed by the company is two times in retail, then one out of two applicants will get one lot irrespective of the number of shares they have applied for.

Ipo allotment process in india

Let’s assume investor K applied for 15 lots for Rs 2 lakhs, investor L applied for one lot, and investor M applied for 7 lots in a public issue at cut-off price.

If the IPO which is subscribed 3 times in Retail Investor Individual Category, the allotment will be based on the lottery and only one out of three applicants will be getting one allocated lot irrespective to the number of shares they have applied. The Retail investors and non-institutional bidders are allowed to withdraw their bids until allotment.

Book Building Process?

Book building is a process of capturing, generating, and recording the shares related demand of the investor and other securities during an initial public offering (IPO) or issuance process respectively to promote efficient discovery of share price.

In book building process, the price at which the securities will be allotted is unknown in advance to the buyers.

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The investors are aware of only the indicative price range. The demand for the shared allocated can only be determined as the book is built but the payment is done after the allocation only.

Fixed Price Process?

Under the fixed-price process, the issuer company which is going public will determine a fixed price at which the shares have to be offered to the investors.

As the price of the allotted securities is known in advance, the demand can only be determined after the securities are issued.

Ipo allotment process in india

The payment can be made at the time of subscription and the refund can be done after allocation.

 

Retail Individual Investor

Retail Investors are the resident of India, NRIs, or HUFs who apply for shares which are less than Rs.2 lakhs in an IPO. In such a case at least 35 percent of the allotment is reserved for Retail Individual Investor or RII category.

IPO Allotment Process

BID Quantity and BID Price

Bid Quantity designates both the price that the potential buyer wants to pay for the shares and the quantity he is willing to purchase at that price.

On the other hand, bid means the amount at which the market maker wants to buy the share.

IPO allotment process

The retail buyer, unlike the market maker will also displays an ask price. Bid Price is the price at which a dealer or a market-maker is prepared to buy other assets or securities.

If the company issuing the IPO doesn’t oversubscribe their shares in RII Category than full allotment is done to all applicants.

If the IPO is oversubscribed in RII category, the allotment to each retail investor will not be less than minimum Bid Lot, subject to the number of Equity Shares available in the Retail Portion.
For instance, if the IPO subscribed by the company is two times in retail, then one out of two applicants will get one lot irrespective of the number of shares they have applied for.

Let’s assume investor K applied for 15 lots for Rs 2 lakhs, investor L applied for one lot, and investor M applied for 7 lots in a public issue at cut-off price.
If the IPO which is subscribed 3 times in Retail Investor Individual Category, the allotment will be based on the lottery and only one out of three applicants will be getting one allocated lot irrespective to the number of shares they have applied.

The Retail investors and non-institutional bidders are allowed to withdraw their bids until allotment.

 

Non-Institutional Bidder Category of an IPO

 

Non-institutional bidders can be the residents of India, Eligible NRIs, companies, HUFs, corporate bodies, societies and trust, and scientific institutions who apply for more than Rs 2 lakhs of IPO shares.

The Non-individual bidders do not have to register with SEBI and they have the right to minimum 15 percent of the offer.

In addition, the high Net-worth Individual (HNI) who applies for over Rs 2 Lakhs in an IPO comes under NII category.

 

All the individual investors, companies, NRI’s, and trusts who bid on IPO for more than one lakhs are called Non-institutional bidders. They unlike RII’s are not required to register with SEBI.

These bidders have a reserved allocation of 15 percent of shares out of the entire issue size in the Book Build IPOs.

IPO allotment process: Cut-off price

There are few pros and cons for all the retail investors to apply under the non-institutional category of any IPO. The main pros are that there is no limit on the application amount.

These investors can bid for any amount which is more that Rs 100’000. The main con is that only a small percentage that is 15 percent of the total shares are reserved for Non-Institutional Investors category whereas the Retail Individual Investors category has a larger portion that is 35 percent of total shares available for allocation.

IPO Share Allotment Process - Hindi - IPO में Shares कैसे Allot होते हैं ?

Simply said, if the non-institutional category investors are oversubscribed heavily, there are very few chances of getting an allotment.

 

Qualified Institutional Bidders

Qualified institutional bidders (QIB’s) are public financial institutions, mutual funds, commercial banks, and foreign Portfolio Investors who are required to register with SEBI.

Minimum 50 percent of the Offer Size is for QIB’s.

The allotment basis is proportionate as the QIBs are generally the small investors of the mutual fund, pension schemes, and ULIP schemes of the insurance company.

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QIB’s are not allowed to withdraw their bids after the IPO is closed.

 

Anchor Investors

An anchor investor in called an individual who builds an application for a price of Rs 10 crore or more through the book-building process.

These investors attract many others to the IPO to boost their confidence before they hit the market.

Up to 60 percent of IPO are reserved under QIB Category and the price of the share is determined separately.

Ipo allotment process in india

The Anchor investors have different Anchor Investor Bid and Offer Period. The merchant banker, relatives, or promoters cannot apply for shares in this category.
If the offer size is less than Rs 250 crore, maximum 15 anchors can invest and if the offer size is above 250 crores, there is no fixed number of investors.

Floor Price for a Book Issue Building

All the companies which are generating Book Building Public Issue decide the price band for the shared issued.

Current IPO in India (BSE, NSE) - Page 1

This price band usually has two levels namely upper level and lower level.

The floor price is the minimum price or the lower level at which the investor’s bids shall be made for an IPO. Buyers can bid for the Book Build issue IPO at any price within the price band which is decided by the issuer company.

 

Cut-off Price for a Book Issue Building

During the Book Build process, investors are also given addition choosing option which is called Cut-Off price for bidding.

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The cut-off price means that the investors are ready to pay the price is decided by the issuer company at the end of the book building procedure.
The investors will then pay the highest price while bidding at a Cut-Off price.

If the final price decided by the company is less than the highest price determined for IPO, the difference is refunded to the investors.

 

Syndicate Members in IPO Processing

 

Syndicate members in a IPO processing are the broking houses who are responsible for distributing the IPO applications, gathering the filled applications from the investors, and updating the data on the stock exchange IPO regularly.

Timelines for Book Building IPOs in India

According to SEBI, the stock market regulators in India and the companies that are coming up with IPOs need to follow a strict timeline.

As there are a number of steps and parties involved in the process of IPO, the SEBI has planned well-defined principles and rules for the time taken by each party.

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Given below are the timelines which are declared by SEBI for the process of Book Building IPO in India:

1) Bidding Process done in minimum 3 days and maximum 7 working Days

2) The process of Basis of allotment is finalized by the lead manager within two weeks from the closure of the issue.

3) The process of share allocation in the Demat Account is done within 15 days from the closure date by the registrar.

4) The listing of the IPO Shares by the going public company is done within seven days from the finalization of the share issue.

 

Pre IPO Placement

A pre-IPO placement occurs when some part of an IPO is placed with private investors before the IPO gets scheduled and hit the market.
Generally, the private investors who are involved in a pre-IPO placement are hedge funds or huge private equity that wants to buy a large share of equity in the company.

Allotment Basis

The allotment is done in proportionate basis, for instance, if the IPO is subscribed 100 times in the NII category, the buyers who have applied for 100 shares will get only one share.

The NII quota gets very large over-subscription as it has a small size.

The main investors applying for this category is mainly individual investors.

IPO allotment process in India

Non-Institutional bidders are allowed to withdraw their bids until allotment.

Days Needed to Issue List in a Market

The minimum days required to list on the stock exchanges are 7 from the end finalization of the issue.

Generally, it would take around three weeks after the book built issue is closed. In case of the fixed price issue the days can extend to 37 days after the closure of the issue.

Ipo allotment process in india