Qualified Institutional Buyers (QIB): IPO Allotment Explained
Introduction
Qualified Institutional Buyers (QIBs) form the backbone of demand in most IPOs. Their participation is closely watched because it often reflects institutional confidence in the company’s valuation, governance, and long-term prospects. SEBI has laid down clear rules governing how shares are reserved and allotted to QIBs.
This document explains who qualifies as a QIB, how allotment works, and how QIB rules differ from retail and NII categories.
What Is a Qualified Institutional Buyer (QIB)?
A Qualified Institutional Buyer (QIB) is an institutional investor that meets SEBI’s eligibility criteria and is considered capable of assessing investment risk independently.
Common QIBs include:
- Mutual funds
- Foreign Portfolio Investors (FPIs)
- Banks and financial institutions
- Insurance companies
- Pension and provident funds
Retail investors and individual HNIs are not classified as QIBs.
Reservation of Shares for QIB Category
In a book-built IPO, shares are reserved across investor categories.
Key points regarding QIB reservation:
- Up to 50% of the net offer can be reserved for QIBs
- This portion is category-specific and not interchangeable with retail or NII quotas
- Oversubscription is calculated independently for QIBs
A strong QIB subscription often indicates institutional interest, but it does not guarantee listing gains.
Anchor Investors and QIB Category
Anchor investors are a subset of QIBs who are allotted shares before the IPO opens to the public.
Important details:
- Anchor allocation happens one working day before issue opening
- Anchor investors must hold shares for a lock-in period
- Anchor portion is deducted from the total QIB quota
Even after anchor allocation, the remaining QIB shares are allotted through the normal bidding process.
How QIB Allotment Works
QIB allotment is typically done using a proportionate allotment method when the category is oversubscribed.
Process overview:
- Total valid QIB demand is calculated
- Available QIB shares are compared with demand
- Shares are allotted in proportion to the bid size
Larger institutional bids generally receive larger allotments, subject to SEBI and registrar rules.
Cut-Off Price and QIB Bids
QIBs are not allowed to bid at the cut-off price.
Key rules:
- QIBs must bid at a specific price within the price band
- Cut-off option is only available to retail investors
- Allotment is done based on valid price bids at or above the final issue price
Incorrect price bidding may lead to partial or zero allotment.
When QIB Category Is Undersubscribed
If QIB demand is less than the shares reserved:
- QIB applicants may receive full allotment
- Unsubscribed shares may be reallocated to other categories as per SEBI rules
Reallocation rules vary depending on IPO structure and demand in other categories.
When QIB Category Is Oversubscribed
In an oversubscription scenario:
- Shares are allotted proportionately
- No lottery system is used
- Allotment depends on bid size and demand ratio
This differs significantly from retail allotment, which uses a lottery-based approach.
QIB vs NII vs Retail Allotment
Key differences across categories:
- QIBs use proportionate allotment
- NIIs also use proportionate allotment but with different bid sizes
- Retail investors use a lottery system in oversubscription
- Retail applications are capped at ₹2,00,000
Regulatory Oversight and Final Allotment
QIB allotment is governed by SEBI ICDR Regulations, the registrar of the issue, and stock exchange approvals.
Once the basis of allotment is finalized by the registrar, it is final and binding.
Key Takeaways
- QIBs are institutional investors approved by SEBI
- Up to 50% of IPO shares can be reserved for QIBs
- Allotment is proportionate in oversubscription
- Anchor investors form part of the QIB category
- Final allotment is determined by the registrar under SEBI rules