How IPO Allotment Works in India (Step-by-Step)
Introduction
An Initial Public Offering (IPO) allows a company to raise capital from the public by offering its shares for the first time. While applying for an IPO is straightforward, the allotment process that follows is structured, regulated, and governed by SEBI.
This article explains how IPO allotment works in India, step by step, in an educational and factual manner.
Step 1: Filing of IPO Documents and SEBI Approval
Before an IPO opens for subscription, the company files a Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI).
- Business overview and operations
- Financial statements and performance
- Risk factors and disclosures
- Proposed use of IPO proceeds
SEBI reviews the disclosures for compliance. Approval allows the company to proceed with the IPO but does not guarantee investor returns or allotment.
Step 2: Announcement of Price Band and Lot Size
After regulatory clearance, the company announces key IPO details such as:
- Price band (minimum and maximum bid price)
- Lot size (minimum shares per application)
- IPO opening and closing dates
- Investor category-wise reservation
Step 3: Investors Apply for the IPO
Investors apply for IPOs using the ASBA (Application Supported by Blocked Amount) mechanism through banks or brokers.
- Bid price or cut-off price (for retail investors)
- Number of lots applied for
- Investor category (RII, NII, QIB, etc.)
Funds are blocked but not debited until allotment is finalized.
Step 4: IPO Subscription Data Is Compiled
Once the IPO closes, stock exchanges publish category-wise subscription data.
- Retail Individual Investors (RII)
- Non-Institutional Investors (NII / HNI)
- Qualified Institutional Buyers (QIB)
Oversubscription occurs when demand exceeds available shares and directly impacts allotment.
Step 5: Basis of Allotment Is Finalized
The IPO registrar is responsible for finalizing the allotment in accordance with SEBI rules.
- Verification of valid applications
- Removal of duplicate or invalid bids
- Application of allotment methodology
In oversubscribed retail categories, allotment is done using a computerized lottery system.
Step 6: Category-Wise Allotment Logic
Different investor categories follow different allotment mechanisms.
- Retail (RII): Lottery-based allotment
- NII / HNI: Proportionate allotment
- QIB: Discretionary but regulated allotment
Step 7: Exchange Approval of Allotment
The registrar submits the Basis of Allotment to stock exchanges for approval.
Once approved, the allotment becomes final and publicly available.
Step 8: Share Credit and Refunds
- Allotted shares are credited to the investor’s Demat account
- Unallotted funds are unblocked or refunded
This process usually completes within a few working days after allotment finalization.
Step 9: Listing on the Stock Exchange
On the listing date, shares begin trading on NSE and/or BSE. IPO allotment and market performance are independent events.
Key Takeaways
- IPO allotment in India is regulated and rule-based
- Retail allotment in oversubscribed IPOs is randomized
- Applying for an IPO does not guarantee allotment
- Oversubscription reduces individual allotment probability