IPO subscription: Key Steps and Factors for Investors

Understanding How IPO Subscriptions Work

Let’s explore how IPO subscriptions work for different participants.An Initial Public Offering (IPO) is a significant financial event where a privately-owned company offers shares to the public for the first time. However, once the shares are made available, how are they distributed among various types of investors? The answer lies in the  subscription process, which varies based on the category of investors involved.

Allocation of IPO Shares to Qualified Institutional Buyers (QIBs)

Qualified Institutional Buyers (QIBs), which typically include mutual funds, pension funds, and other large financial entities, are granted IPO shares at the discretion of merchant bankers. These institutional buyers play a critical role in stabilizing the demand for shares during an IPO.

In cases where the IPO is oversubscribed, the shares are distributed among QIBs on a proportional basis. This ensures that even when demand surpasses the available shares, all QIBs receive a fair allocation, though they might not always get the number of shares they initially requested.

Allocation of IPO Shares to Retail Investors

Retail investors, who are individual investors looking to capitalize on IPO opportunities, are subject to specific rules set by the Securities and Exchange Board of India (SEBI). For instance, retail investors can bid for shares worth up to ₹2 lakh in an IPO.

• In case of equal or lesser demand: If the number of shares retail investors bid for is equal to or less than the portion allocated to them, they receive the full allotment of shares for all legitimate bids.
• In case of excess demand: When the demand from retail investors exceeds the number of shares available in this category, the shares are distributed in a manner that maximizes the number of individual investors who receive shares. The available shares are divided by the minimum bid lot, which determines the maximum number of allottees. This system ensures that as many investors as possible receive shares, even if the allotment is smaller than initially anticipated.

Allocation of IPO Shares to High Net-worth Individuals (HNIs)

High Net-worth Individuals (HNIs) are investors who place bids of more than ₹2 lakh in an IPO. Given their substantial investment amounts, HNIs are also allocated shares proportionally in cases of oversubscription.

Moreover, many financial institutions extend loans to HNIs specifically for investing in IPOs, further increasing the capital they can commit to such investments. This group often plays a critical role in boosting the overall demand for shares during an IPO.

Understanding IPO Subscription Status

The IPO subscription status represents the level of interest investors show in a company’s public offering. It tracks the number of bids placed by investors on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

Investors submit bids on either exchange during the IPO process, and these bids are updated in real-time on the exchange’s respective websites. The IPO subscription status is essential because it allows investors to gauge the level of interest in a particular IPO. A frequently oversubscribed IPO often indicates strong demand and can be an attractive investment opportunity.

Checking Your IPO Subscription Status

Once you’ve applied for an IPO, you may want to track its progress. It’s important to monitor the status of your subscription to stay informed about your investment. Here’s how you can check the subscription status on the NSE India website:

1. Visit the NSE India website.
2. Go to the ‘Market Data’ section and select ‘New Public Issue’ under the ‘Trade Data’ menu.
3. On the next page, all ongoing IPOs will be listed.
4. Select the specific IPO you wish to check.
5. You’ll then be taken to a page displaying Aggregate Bid Details and NSE Bid Details, which show the total bids received across both the NSE and BSE, as well as the bids received exclusively on the NSE.

The subscription status page provides a quick view of the demand for shares and the level of participation across various categories of investors, including QIBs, HNIs, and retail investors.

Why You Should Track IPO Subscription Status

Monitoring the IPO subscription status is important for several reasons. It gives you insight into how much interest the market has in the IPO and can help you gauge investor sentiment.

The status report breaks down the allocation proportion among QIBs