Reasons For The IPO Shares' Non-Allotment | Motilal Oswal

The IPO Shares' Non-Allotment

In the first quarter of 2022, the IPO craze was so evident that investors from all over, even freshers, wanted to be a part of LIC’s hulk of an offering. During that time, the buzzword (more like a battlecry) was “Invest in the Upcoming IPO from LIC”. From banks, to the media, everyone was compelling people to invest. Individuals were hoping for an opportunity to allocate their wealth to a company’s shares that were sure to see great returns in the future. 

 

Nonetheless, when investing in an IPO, there are certain aspects of the offering that investors must consider, and not just jump in blindly. With any IPO, whether it is the recent Life Insurance Corporation of India IPO, or any other, investors must realise that they can only subscribe to apply for shares in the company. Whether they are allotted the shares they wish to own, or allotted a lesser number than that subscribed for, is entirely the decision of the company being listed. 

 

Understanding an IPO

The launch of an IPO by any private company indicates that it is offering its shares to the public, and therefore, becoming a public company. After shares have been allotted to investors, the company is listed on the stock exchange, and you can buy its shares from the share market. Every IPO has specific requirements concerning the lot size, price range, etc. that each investor must think about when applying for any upcoming IPO

 

If you have ever subscribed to an IPO, and been allotted the shares you have applied for, you may be a fortunate investor. There are those investors who may not receive any IPO allotment. However, there are plausible reasons for this, and if you are aware of these, you may well be able to reduce your chances for disappointment with a follow-on public offering (a future offering of an IPO). 

 

Common Reasons for IPO Non-Allotment

If you get shares allotted to you via an IPO, you are essentially buying a company’s stock. Hence, in order to store the stocks you are allotted in an electronic format, you need to open a Demat account. Nonetheless, you may well invest in any upcoming IPO with great enthusiasm at the prospect of owning shares in a potentially promising company, but face disappointment when you are not allotted any stocks of the company. The possible reasons for this can help you avoid disappointment with future IPO subscriptions. These reasons are highlighted below: 

 

  • Incorrect Application - Applications (forms) of each IPO are checked for correctness and completeness of the information requested. Invalid details or wrong information can lead to rejection. Furthermore, in the event that the company receives several applications with the same PAN, those are rejected. Finally, there could be a mismatch in the applicant’s name as it appears on the form of the IPO and the PAN card, bank account, etc. 

 

  • The Lottery System - In case the company receives more than expected subscriptions, it clearly cannot allot more shares to investors than it initially planned to. Hence, some investors lose out. In such circumstances, companies actually pick applications through a lottery to allot shares. 

 

Investment in the Share Market

Investment in an upcoming IPO is a good way to grow your wealth, especially if you are looking for long-term wealth creation. It is not a challenge to invest, and when you know of an upcoming IPO, you should open a Demat account and subscribe within the first day of the IPO offering to increase your allotment chances. 

Related articles: 5 Tips for Investing In IPOs | What's the big deal about IPOs | Clearing the confusion from IPOs | IPO in India- The future looks bright | Upcoming IPO

 

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