What Happens If an IPO Is Oversubscribed?
Overview
An IPO is said to be oversubscribed when the total number of shares or lots applied for by investors exceeds the total number of shares available for allotment in one or more investor categories.
Oversubscription is common in popular IPOs and directly impacts who receives shares and how many.
Understanding Oversubscription
Oversubscription occurs when demand is higher than supply.
This demand can come from different investor categories.
- Retail Individual Investors (RII)
- Non-Institutional Investors (NII / HNI)
- Qualified Institutional Buyers (QIB)
Oversubscription is calculated category-wise, not on an overall basis.
What Happens After Oversubscription?
Once an IPO closes and oversubscription is identified, the following steps take place.
- Invalid applications are removed, including duplicate or non-compliant bids.
- Category-wise demand is finalized separately for each investor class.
- The basis of allotment is prepared by the IPO registrar.
- The basis of allotment is reviewed and approved by the stock exchange.
How Allotment Works in Oversubscribed IPOs
The allotment method depends on the level of oversubscription.
Super-Oversubscription (Lottery Situation)
When the number of valid applications exceeds the available lots, not every applicant can receive even one lot.
- All applicants have an equal chance of allotment.
- Allotment is done via a computerized lottery.
- Many applicants receive zero allotment.
Oversubscription With At Least One Lot
When the total number of valid applications is less than available lots, every valid applicant receives at least one lot.
Remaining shares, if any, are distributed as per the approved basis of allotment.
Oversubscription With Cut-Off and Price Bids
In some IPOs, cut-off applications may be within available lots while price bids exceed remaining shares.
- All cut-off applicants receive full allotment.
- Price bids receive partial or proportionate allotment.
- Some price bidders may receive no allotment.
Key Takeaway
If an IPO is oversubscribed, not everyone will receive shares. Allotment depends on category-wise demand and SEBI-defined rules.
Oversubscription increases competition - not certainty.