Reason for the non-allotment of shares in the IPO
In recent times, we have witnessed a significant spike in IPO participation due to increased awareness. However, the allotment of shares in an IPO is based on sheer luck if there is an over-subscription of shares. Let us take a detailed look at the non-allotment of IPO due to over-subscription.
What is over-subscription? Over-subscription is a situation where the company receives more applications than the offered number of shares. For example - XYZ Co. has offered 5,00,000 shares but has received applications for 7,50,000 shares. It means the IPO is oversubscribed.
In such a case, the company cannot allot shares to each applicant, and a computerized lottery is held, leaving the allotment of IPO shares to your luck. This means even though you have submitted a successful application, you might not get the allotment as it is solely based on the lottery.
Let’s understand this with a real-life example: Latent View Analytics Private Limited’s IPO in the retail category was heavily oversubscribed. They received applications for approximately 32 crore shares when only around 30 lakhs shares were reserved as per the IPO prospectus for the retail category. In this case, based on the lottery system, only 3 out of 241 applicants received the allotment of the IPO shares. This shows that the allotment of IPO shares in case of over-subscription depends on your luck as it happens via lottery.
Kindly note that in the case of a lottery system, your broker cannot help you with the allotment of shares.