IPO Allotment Probablity Explained With Examples
Introduction
IPO allotment probability is often discussed when an IPO receives more demand than the shares available.
This article explains IPO allotment probability using practical oversubscription and undersubscription scenarios to help understand how allotment generally works.
What Is IPO Allotment Probability?
IPO allotment probability is a theoretical estimate that attempts to express the likelihood of receiving shares in an IPO.
It is not an official figure and has no role in the actual allotment process, which is handled solely by the registrar.
Super-Oversubscription Scenario
Super-oversubscription occurs when the number of applications exceeds the total number of available lots.
In this situation, not every applicant has a chance of allotment, and allotment is usually done through a lottery.
- Available shares: 1,00,000
- Lot size: 10
- Available lots: 10,000
- Number of applications: 20,000
Since applications exceed available lots, only some applicants will receive one lot, while others will receive none.
Oversubscription With At Least One Lot for Everyone
In this scenario, the number of applications is less than the available lots.
Here, every valid applicant can receive at least one lot, even though the IPO is oversubscribed in terms of total shares.
- Available shares: 1,00,000
- Lot size: 10
- Available lots: 10,000
- Number of applicants: 7,000
Since available lots exceed applications, each applicant will receive at least one lot.
Oversubscription With Cut-Off and Price Applications
This situation occurs when cut-off applications alone do not exhaust available lots.
In such cases, all cut-off applications receive full allotment, while price-based applications receive partial allotment.
- Available shares: 1,00,000
- Lot size: 10
- Available lots: 10,000
- Cut-off lots: 8,000
- Price lots: 4,000
After allotting all cut-off applications, remaining lots are distributed proportionately among price applicants.
Undersubscription Scenario
Undersubscription occurs when total bid shares are less than the shares available.
In this case, all valid applicants receive the shares they applied for, subject to the lowest valid bid.
- Available shares: 1,00,000
- Lot size: 10
- Available lots: 10,000
- Lots bid: 8,000
All subscribers will receive allotment based on their bids.
Exact Subscription Scenario
If total valid bids exactly match the number of shares available, the IPO is said to be exactly subscribed.
In this situation, all valid applicants receive full allotment without any lottery or proportionate reduction.
IPO Allotment Probability vs Actual Allotment
IPO allotment probability is an estimate, whereas actual allotment is final and binding.
- Probability is informational and non-binding
- Actual allotment is determined solely by the registrar
- Registrar allotment overrides all estimates
Key Takeaways
- Higher oversubscription generally lowers chances of allotment
- Not all oversubscriptions are treated the same
- Probability figures are simplified explanations, not guarantees
- Only official allotment results should be relied upon
Final Note
IPO allotment probability should be used strictly for educational understanding and not as a basis for investment or application decisions.