WHY IPO NOT ALLOTTED

IPO Allotment Process

When a company goes public through an initial public offering (IPO), it issues new shares of stock to raise capital. Investors can apply to buy these shares during the IPO process. However, not all investors who apply for shares will be allotted shares.

The allotment process for IPOs is typically based on a combination of factors, including the number of shares available, the number of shares applied for, and the price at which the shares are offered. In some cases, companies may also give priority to certain types of investors, such as institutional investors or retail investors.

Factors Affecting IPO Allotment

Several factors can affect whether an investor is allotted shares in an IPO. These factors include:

Number of Shares Available

The total number of shares available in an IPO is limited. This means that not all investors who apply for shares will be able to get them. The number of shares available is determined by the company going public and its underwriters.

Number of Shares Applied For

The number of shares that an investor applies for can also affect whether they are allotted shares. If an investor applies for more shares than are available, they are less likely to be allotted any shares.

Price at Which Shares Are Offered

The price at which the shares are offered can also affect the allotment process. If the shares are offered at a high price, fewer investors may be willing to apply for them. This can lead to a lower demand for shares and make it more likely that investors will be allotted shares.

Type of Investor

In some cases, companies may give priority to certain types of investors in the IPO allotment process. For example, institutional investors, such as pension funds and mutual funds, may be given priority over retail investors. This is because institutional investors are typically seen as being more sophisticated and having a longer-term investment horizon.

Reasons Why IPOs May Not Be Allotted

There are several reasons why an investor may not be allotted shares in an IPO, even if they meet all of the eligibility criteria. These reasons include:

Oversubscription

If an IPO is oversubscribed, this means that there are more applications for shares than there are shares available. In this case, the allotment process will be used to determine which investors are allotted shares.

Retail Investor Caps

Some IPOs may have retail investor caps. This means that there is a limit on the number of shares that can be allotted to retail investors. This is done to prevent a small number of retail investors from dominating the allocation process.

Minimum Bid Size

Some IPOs may have a minimum bid size. This means that investors must apply for a minimum number of shares to be eligible for allotment. This is done to discourage small investors from applying for shares.

Conclusion

The IPO allotment process can be complex and competitive. There are several factors that can affect whether an investor is allotted shares in an IPO. Investors who are interested in participating in an IPO should carefully consider all of these factors before applying for shares.

FAQs on IPO Allotment

1. What is the IPO allotment process?

The IPO allotment process is the process by which shares in an IPO are allocated to investors. The process typically involves a combination of factors, including the number of shares available, the number of shares applied for, and the price at which the shares are offered.

2. What factors affect IPO allotment?

Several factors can affect IPO allotment, including the number of shares available, the number of shares applied for, the price at which the shares are offered, and the type of investor.

3. Why might an IPO not be allotted?

There are several reasons why an IPO may not be allotted, including oversubscription, retail investor caps, and minimum bid size.

4. How can I increase my chances of being allotted shares in an IPO?

There is no guarantee that you will be allotted shares in an IPO, but there are some things you can do to increase your chances, such as applying for a large number of shares and applying early.

5. What should I do if I am not allotted shares in an IPO?

If you are not allotted shares in an IPO, you can try to buy shares on the open market after the IPO. However, the share price may be higher than the IPO price, so you may not be able to make a profit.