IPO Allotment Document List/Is IPO Allotment Truly Random?

Is IPO Allotment Truly Random?

Introduction

IPO allotment is often described as “random,” especially in heavily oversubscribed issues. While randomness is involved, IPO allotment in India is not completely arbitrary.

It follows a defined regulatory framework laid down by SEBI and implemented by IPO registrars.

What Does “Random” Mean in IPO Allotment?

In IPO allotment, randomness usually refers to a computerized lottery system used when demand exceeds supply in a particular investor category.

However, this randomness:

  • Is not manual
  • Is not discretionary
  • Is not biased
  • Operates within predefined rules

Randomness is applied only after eligibility conditions are met.

When Does Randomness Come Into Play?

Random allotment typically applies in the following scenario:

  • The IPO is oversubscribed
  • The number of valid applications exceeds available lots
  • All applications are at or above the cut-off price
  • All applications are valid and compliant

In such cases, the registrar uses a computer-based draw of lots to select applications for allotment.

Each valid application gets one equal chance.

When IPO Allotment Is NOT Random

IPO allotment is not random in these situations:

  • Undersubscribed IPOs: If total demand is lower than available shares, all valid applicants receive allotment.
  • Oversubscription but Applications ≤ Available Lots: Every applicant receives allotment and some applicants may receive more than one lot.
  • Different Bid Prices: Applicants bidding below cut-off price are excluded from allotment.

Randomness Is Applied Per Application, Not Per Investor

Each valid application is treated as one unit in the lottery.

  • Applying for multiple lots does not increase chances
  • Applying from multiple PANs (legally allowed) creates multiple entries
  • Application amount does not influence selection

Randomness is binary:

  • Selected → gets allotment
  • Not selected → gets no allotment

Role of SEBI and IPO Registrars

IPO allotment is governed by:

  • SEBI ICDR Regulations
  • Registrar-managed automated systems
  • Auditable processes

Registrars:

  • Validate applications
  • Remove duplicates or invalid bids
  • Run computerized allotment logic
  • Maintain logs and audit trails

Is the Lottery Truly Fair?

Yes, within regulatory limits.

The lottery:

  • Uses algorithmic randomization
  • Treats all valid applications equally
  • Does not factor in investor identity, capital size, or past history

However, fairness does not mean guaranteed outcomes.

Why Many Investors Feel It Is “Unfair”

Perception of unfairness usually arises due to:

  • High oversubscription ratios
  • Low probability of selection
  • Repeated non-allotment experiences
  • Misunderstanding of probability vs certainty

A 10% chance still means a 90% chance of non-allotment.

Probability vs Randomness

Randomness decides who gets selected

Probability estimates how likely selection is

Actual allotment always overrides probability.

Final Conclusion

IPO allotment is:

  • Rule-based
  • System-driven
  • Partially random
  • Fully regulated

Randomness is used only as a fair selection mechanism when demand exceeds supply, not as an arbitrary decision.

Is IPO Allotment Truly Random? | IPO Allotment Probability Calculator