An IPO (initial public offering) is a momentous occasion in the history of a registered company. It is a sign that a company has finally matured into a fully-grown, effective organization that has commanded enough goodwill in the market to be able to start raising funds from the public. For many venture-capital funded startups, an IPO is usually baked into the list of things they need to achieve in order to fulfill the wishes of their investors by delivering an ‘exit’.
IPOs tend to be done at a huge scale and bring about a few changes in the ownership structure of a company. With fresh infusion of money, companies can now expand operations, invest in product development, hire better talent and so much more. This comes at the cost of a dilution in ownership structure and the price at which the stocks trade indicates the trust that it’s investors/owners place on it’s future potential.
Needless to say, if a company has matured enough to announce an IPO, it means that it has braved many storms and would have already established itself as a leader in the segment that it operates. For such companies, the initial public offering process attracts a lot of coverage and fanfare as there are many potential investors who will be seeking to get in on the bandwagon.
The initial public offering process itself comes with a few nuances that account for instances where there is a mismatch between the amount of shares that are being floated and the amount of bids that are received. To know more about how these instances are dealt with, we will have to understand the IPO allotment process itself.
The Allotment Process
Before you can even begin to think about subscribing to an IPO, you need to have the following:
- Demat account (necessary for buying shares)
- Trading Account (necessary if you intend on selling shares)
- Amount in Demat account that corresponds to your bid
- If you do have all the basics in place, you will have to initiate the application process. It’s a fairly straightforward procedure and happens in the following sequence:
Step 1: Initiate Application
This can be done via online/offline mediums and it’s absolutely essential that your account has enough funds to cover the bid that you place. Since the market regulators have made the ‘Blocked amount facility’ compulsory for IPOs, your bid is unlikely to be considered if you fail to have the amount set aside.
Step 2: Allotment
This happens behind closed doors and could go one of any way depending on the number of bids and the validity of bids that are submitted. It is important to note that not all the applicants end up getting what they had requested for as demand tends to outstrip supply by a vast margin.
Step 3: Approval
In about 7 days’ time, the registrar of the IPO finishes and confirms allotment of the to successful bidders. The IPO allotment status can be checked via the website of the registrar. It can also be checked on the websites of the NSE or the BSE. You will need the PAN and DPID/Client ID number or the bid application number for the IPO allotment status check.
Now that we know what the allotment process looks like, it is worth taking a deeper look at the dynamic governing the allotment process and how fringe cases are dealt with.
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