Initial Public Offerings (IPOs) can be great experiences for investors willing to mint the success of businesses in their portfolios. The IPO market in India has grown tremendously in recent years as retail and institutional investors have been keen on applying to be allotted the shares of potential companies. EY’s Q1 2025 IPO Trends Report highlights that India’s IPO market has remained strong, accounting for 22% of global IPO activity in the first quarter of 2025. When the IPO has more applications than the shares to be given out, the question of allotment can become a major concern. The basis of allotment is the systematised procedure that provides equity and clarification in allotting shares to the applicants. Learning this procedure can assist investors in managing their expectations and analysing their allocation probability.
What Is the Basis of Allotment in IPO?
Basis of allotment in IPO describes the principle and method of assigning portions of an IPO to various classes of investors. The process of allotment is done through the SEBI regulatory framework, as IPOs, in most cases, receive demand in more than the available shares since they are quite popular in most cases. The allotment ratio is established once the subscription window closes and the registrar, along with the lead managers and stock exchange, draws up a document on how shares are to be distributed to retail investors, Non-Institutional Investors (NIIs), and QIBs categories.
Who Prepares the Basis of Allotment?
Role of RTA (Registrar to the Issue)
The registrar plays the most important role in preparing the basis of allotment. In fact, it is the sole authority responsible for preparing and releasing the final basis of allotment document. Registrars and Transfer agents like Link Intime or KFin Technologies receive subscription information, receive and process applications, reject invalid ones, and prepare the list of basis of allotment by category.
Role of Book Running Lead Manager (BRLM)
BRLM ensures that the SEBI guidelines are adhered to and coordinates between the company and the stock exchange. They oversee the allotment document and ensure that it complies with regulations.
Role of Stock Exchange
Approval of the basis of allotment is conducted by a stock exchange, generally NSE or BSE, and is conducted by a meeting between it, the registrar and BRLM. The allotment is finalised and the exchange makes the information public thus ensuring transparency.
Allotment Categories
Retail Investors (RIIs)
Retail investors are those applying for shares worth up to ₹2 lakh. The minimum investment for retail participation is 1 lot, which is the smallest tradable unit of shares fixed by the company for the IPO. At least 35% IPO issue size is set aside by SEBI in this category. When a project is oversubscribed, it is often implemented by a lottery scheme in order to provide fair opportunities.
Non-Institutional Investors (NIIs) & High Net-worth Individuals (HNIs)
NIIs are investors seeking to subscribe to shares with an amount that falls between ₹2 lakh and ₹10 crore, whereas HNIs prefer to subscribe to large sums of money, around 10 lakhs or more. SEBI reserves this category at least 15% of the issue. Allotment in this case is normally proportionate.
Qualified Institutional Buyers (QIBs)
Mutual funds, insurance companies, banks, and foreign institutional investors are in this category. IPOs’ allotments to QIB consist of at least half of the overall IPO size. Their allocation will be proportionate and will depend on demand during the book-building process.
Allotment Methods Based on Subscription Levels
Oversubscription: Pro-rata & Lottery
When demand exceeds supply, there is oversubscription. In this case basis of allotment follows either:
- Pro-rata basis: Shares are distributed in proportion to the application size.
- Lottery system: For small investors, allotment may be done randomly to ensure fairness.
Undersubscription / Fully Subscribed
In the scenario where the IPO is undersubscribed or fully subscribed, each applicant is allotted the shares according to their application. The rest of the amount in unsubcription can be distributed to other categories as per SEBI rules.
Different Types of Basis of Allotment in IPOs
Proportional Allotment
Shares are issued in the ratio of the number of shares applied. NIIs and QIBs are largely allotted by this method.
Random Allotment
Retail investors are typically subject to a random allotment in cases of oversubscription, where a lottery is used to provide all investors with an equal chance. A well-known example is the Zomato IPO (July 2021). It was oversubscribed 38.25 times overall.
Guaranteed Allotment
In some IPOs or special categories, small-sized ones, the applicants are guaranteed to get the number of shares applied for. In the SBI Cards IPO, a special Employee Reservation Portion ensured that if demand was within the reserved limit, all eligible employees received the full shares they applied for.
IPO Subscription Details and Allotment Procedure
Subscription Period
The shares to be issued in the IPO can be applied for through subscription within three working days. Applications are gathered through ASBA (Application Supported by Blocked Amount) or through UPI-based systems.
Category-wise Allocation
After the subscription, the registrar then analyses the demand by category: retail, NIIs, and QIBs and segregates the application.
Oversubscription and Allotment
In the event of oversubscription, the basis of allotment ratio is also determined in a manner that ensures shares are allocated fairly. To retail investors, this can translate to low numbers of shares or no allotment at all.
Final Allotment
Shares get credited to the Demat accounts of successful applicants after the stock exchange approves the allotment. Refunds on unsuccessful applications are also processed at the same time.
Status Check
Investors can check whether they have been allotted shares on the stock exchange portals, registrar websites, or through their stock brokers.
Basis of Allotment Document: What It Contains
Subscription Data, Allotment Ratios, Oversubscription
The document provides the shares applied against the total available shares, the category-level subscription level, allotment ratio, and oversubscription information. As an example, it could state that retail investors were allotted the shares in the ratio of 1:4, i.e. one out of four people applying are allotted the shares.
Regulatory Guidelines (SEBI’s ICDR Rules)
ICDR Rules prescribe the guidelines with regard to making allotments in IPOs. These regulations are designed to protect investors, equity, and transparency in the IPO process.
- Minimum 35% reservation for retail investors (RIIs): SEBI requires the issue to reserve at least a good quarter of the issue to give small investors with limited investment potential an equal chance of participating in it.
- 15% reservation for NIIs: This portion is reserved for high-net-worth and other non-institutional investors. This ensures that applicants with larger ticket sizes also have organised access to shares.
- 50% reservation for Qualified Institutional Buyers (QIBs): Qualified Institutional Buyers (QIBs) are comprised of institutions like banks, mutual funds, and insurance companies and are allotted the major portion because their participation would lend the issue stability and credibility.
- Pro-rata allotment for large applications: Allocations against bids made with large amounts in a category, such as QIBs and NIIs, are on a proportionate basis to prevent lopsided distribution.
- Lottery system for retail oversubscription: When the number of retail applications is oversubscribed, allocation is then done randomly by use of a computerised lottery system. This is to promote a leveled playing field for all applicants, regardless of the size of application.
Real-World Example & Process Walkthrough
Consider the Zomato IPO in 2021, which was oversubscribed 38 times overall. Retail investors oversubscribed 7.45 times, NIIs 33 times, and QIBs 54 times. In such a case:
- Retail investors were allotted shares through a lottery system.
- NIIs and QIBs received proportionate allotments.
- The registrar published the basis of allotment document, which showed exact ratios.
This example highlights how oversubscription impacts chances of allotment and why understanding the process is essential for investors.
Tips to Check Your IPO Allotment Status
- Registrar’s Website: Enter PAN, application number, or Demat details.
- Stock Exchange Portals: NSE and BSE provide IPO allotment status online.
- Broker Platforms: Many brokers integrate allotment updates directly in their apps.
- Email/SMS Alerts: Applicants often receive confirmation directly from exchanges or registrars.
Checking basis of allotment status quickly helps investors plan next steps, such as monitoring listing gains or reallocating funds.
Conclusion
Allotment of IPOs occurs on a sound basis, hence, fair, open, and rule-based share allotment to investors. As the interest of investors in India increases, it is essential to understand this process to form practical expectations. Whether a retail investor hopes to be allotted through the lottery or an institutional investor anticipates a proportional allocation, understanding how the system operates will help make informed choices. Regulatory provisions by SEBI and continuous processing by registrars and exchanges ensure the integrity in allotments of IPOs. By keeping up with the allotment news and monitoring the basis of allotment documents, investors can gain more knowledge to invest confidently.
FAQs
Allotment is the distribution of shares to investors who applied to an Initial Public Offering. Demand is usually greater than supply; thus, companies and registrars abide by the guidelines of SEBI to ensure a fair distribution. Retail investors can receive shares through a lottery system, or they can be allocated on a pro-rata basis to institutional and high-net-worth investors. The allocation list shows who has been allocated and in what quantity. This is a vital part of the procedure prior to listing on exchanges.
After the registrar publishes the IPO allotment status, investors can check their allotment status online. Using the application form ID, enrolling PAN number, DP/Client ID or by just going to the official website of the registrar, like Link Intime or KFintech, the status can be viewed. Updates about basis of allotment are also listed on stock exchange sites such as NSE and BSE. The notifications can also be sent via email or SMS. The status helps investors verify the status of their shares, whether they have been allotted or not, in anticipation of future trading or investment plans.
The time that passes in the listing process after finalising the share allotment is referred to as the 3-day rule in IPOs. According to the guidelines of SEBI, IPO shares should be listed on the stock exchange within three working days of the allotment process. This is an important time frame as it offers high liquidity and transparency to the investor. Shares are entered into the demat account prior to listing when allotted.
Investors may sell the IPO stocks on the listing day itself, but before the opening of the market, and this is only possible in those cases where the shares have been credited in their demat account. This aligns with the common practice among investors who invest in IPOs, anticipating immediate listing gains when the stock opens at a premium. The price at which a stock will sell on its listing day is based on demand, Grey Market Premium (GMP), and the general market attitude. Certain shareholders, however, prefer to hold the stocks for longer, depending on the growth potential and fundamentals of the company.
Cases of oversubscription in IPOs occur when there are more buyers than shares being raised. In this, SEBI prescribes a fair procedure. Allocation to retail investors tends to be determined through a computerised lottery, giving equal opportunity regardless of application amount. QIBs and NIIs may be allocated shares pro rata. It implies that the more shares they apply, the more their basis of allotment is proportionate.
