How are shares allocated during IPO and what is the meaning of oversubscription in an IPO?

Podcast Duration: 06:52
Namaskar dosto. Angel Broking ke iss podcast mein aapka swagat hai. Traders toh IPO ka naam sun ke aasmaan mein chad jate hai. Inke excitement ki yeh wajah hai ki inke hishab se IPO shares ko kam daam mein lene ka mauka hai.

Traders ke yeh excitement ke karan, shares ka demand bahut bad jata hai. Overbooked flight ke jaise situation ho jata hai. Ever reached the airport aur airline ground staff ke Colgate smile dekh ke sunna pada ki Terrrrribly sorry Sir your flight is overbooked and so you have been bumped off and we will put you on the next available flight. Ussi jaise IPO ke liye bhi oversubscription ho sakta hai. For example, 2019 ke IPOs mein se Ujjivan Small Finance Bank ka IPO was oversubscribed by 166x. Iska yeh matlab hai ki agar in ke paas bechane ke liye 100 shares the, there were 16,600 people who signed up to buy those shares. Similarly IRCTC ka IPO mein 112x oversubscription tha.

Chaliye dekh lete hai ki company IPO ke samay shares kaise allocate karte hai. IPO mein buyers ke 3 kisam hote hai. Yeh hai Qualified Institutional Buyers jisse kahte hai QIBs, Non Institutional Investors jisse kahte hai NIIs, aur aapke jaise Retail Buyers jisse RII bi kahte hai - short form for Retail Individual Investors.

QIBs, as the name suggests, rahte hai institutional investors yaani ki mutual fund houses, banks, insurance companies etc. In ke paas huge stock khareedne ke budgets, expertise aur risk appetite rahte hai. NIIs are most high net worth individuals - inke paas bhi zyaada stock khareedne ke budgets, expertise aur risk appetite rahte hai lekin not to the extent of a QIB.

Retail buyers ke category mein traders Rs 1 lakh se zyaada value ka stock nahi le sakte. Unke obviously kam budgets aur risk appetite rahte hai kyunki retail buyers toh aam aadmi rahte hai.

Har kisam ke buyers ko fixed percentage of allotment diya jata hai according to regulatory guidelines.
QIBs ko not more than 50% of total IPO allocation becha ja sakta hai.
NIIs ko at least 15% of total IPO allocation bechna hota hai.
Aur hum jaise retail buyers ko at least 35% of total IPO allocation bechna hota hai.

Toh what happens in a situation where - Ujjivan air IRCTC IPOs- ke jaise, there is an oversubscription?
Company does two things
Reallocation of number of shares
Putting extra stock on the market

Ek aur baat bolna zaroori hai. Kai cheeze fixed rahte hai, jaise ki:
Share price fixed rahta hai.
Minimum application and allotment amount cannot exceed Rs 15,000 worth of shares.
Minimum application and allotment amount cannot fall below Rs 10,000 worth of shares.

Oversubscription ke samay, company share price ko badha nahi sakta. Aur nahi wo allotment ko Rs 10,000 worth of shares se kam de sakte.

Toh oversubscription ke samay company kya karti hai and how does it impact you as a potential investor?

Main example dwaara samjhata hu.

Socho ke XYZ Shipping apne IPO mein 200,000 shares bech rahe hai. Share price hai Rs 100.

RII category mein, after removing technically incorrect buyers, buyers who have failed to meet the minimum bid price vaghera, in ke paas 1,500 buyer applicants hai. Har retail buyer ne 100 shares ke lite bid kiya hai. Yaha 150,000 shares ka demand hai.

NII category mein, inke paas 200 applicants hai jo 500 shares each ke liye bid kiya hua hai. Yaha 100,000 shares ka demand hai.

QIB category mein XYZ Shipping ke paas koi excess demand nahi hai.

Obviously XYZ Shipping ka IPO mein oversubscription ho gaya hai. Toh XYZ Shipping RII category mein allocation rules ke hishab se 35% yaani ke 70,000 shares denge. Toh harr buyer ko 46.67 shares milenge. Lekin regulatory rules ke hishab se allocation value is minimum Rs 10,000 - ISS situation mein allocation value sirf Rs 4,667 reh jayega. Isse solve karne ke liye, company lottery nikaal deta aur randomly selected 700 investors ko 100 shares each allocate kiya jata hai. Jo bilkul dating apps ke hi jaise rahte hai. Tinder/ hinge mein kya hota hai? Kam ladkiya aur zyaada ladke rahne ke karan bahut kam ladkon ki lottery lagti hai nah? Lekin at least over here aap apne profile photo ya bio ke vajah se reject nai honge - aapka naseeb acha hai toh aapko allocation mil jayega.

Similarly NII category mein allocation rules ke hishab se 15% yaani ke 30,000 shares denge. Toh harr buyer ko 150 shades mil sakta - which is within the maximum allocation limit.

Reallocation hone ke baad bhi company ko safety measures lena hota hai so that the stock price unreasonably inflate nahi ho jaye due to oversubscription. Toh company apne promoters ya pre-isssue investors se maximum 15% stock le ke stock market mein dal dete hai.

Naseeb achi hui to, ho sakta oversubscription hone ke bhavjud bhi aapko stock mil bhi jayega. Lekin ek baat yaad rakhna - just because there is insane demand for the stock right now, it does guarantee a good price increase and good profits going forward. Stock market mein koi guarantees nahi hai and certain measures need to be taken to minimize and manage risk.

Toh dosto here was a very detailed lesson on how allocation happens during an IPO - agar aap IPO ke liye apply karna chahte ho to humara podcast How Can I Invest in IPOs suniye aur puri jankari paiye.