How IPO Allotment Is Decided When Demand Exceeds Supply

How IPO allotment is decided when demand exceeds supply depends entirely on which investor category your bid sits in, because each pool follows a different rule. Allotment isn’t first-come, first-served. A registrar runs it under SEBI’s rules after the issue closes.

How the Issue Is Split Before Anyone Applies

The shares are divided into reserved pools, and a pool being oversubscribed only affects the people inside it.

• QIB (institutions): up to about 50% of a standard book-built issue
• Retail (RII): at least about 35%, for applications up to ₹2 lakh
• NII (HNI): about 15%, for applications above ₹2 lakh
• The NII pool is split into one-third for small NII (₹2–10 lakh) and two-thirds for big NII (above ₹10 lakh), each allotted separately
• Exact percentages vary by issue, so check the offer document for the one you’re bidding in

Retail Investors: The Lottery

Retail is the one pool where luck decides, and SEBI designed it that way on purpose.

• SEBI’s aim is that as many unique investors as possible receive at least one lot
• If the retail pool is oversubscribed, a computerised lottery picks the winners
• Each winner gets one lot, so allotment is by draw, not by how much you bid
• Every valid application has the same chance, whether it was one lot or the maximum

Here’s a simple illustration. If 10,000 lots are reserved for retail and 1,00,000 valid applications come in, the issue is 10 times subscribed, and roughly one applicant in ten receives a lot. At 100 times, it’s about one in a hundred.

Why Applying for More Lots Doesn’t Help

This is the point most first-time applicants get wrong.

• Once the retail pool is heavily oversubscribed, a bid for ten lots has the same odds as a bid for one
• A bigger bid only locks up more of your money while you wait
• Retail applicants who want better odds usually can’t improve them by bidding more
• If the pool is undersubscribed, everyone with a valid bid gets what they applied for

NII Investors: Where Sources Disagree

The rules here are more detailed, and published explanations don’t fully agree.

• All sources agree on a minimum application size of about ₹2 lakh, which is the floor for a successful NII allotment
• Some describe the small NII pool as proportionate, tied to that minimum size
• Others say small NII is settled by lottery, and big NII proportionately
• Another explanation says there’s a draw of lots for the minimum application size, with leftover shares allotted proportionately
• If you plan to bid in this category, check the registrar’s basis of allotment for the specific issue, since the mechanics can read differently across guides
• In heavily oversubscribed issues, many NII applicants receive nothing

QIBs and Anchor Investors

Institutions get the most predictable treatment, and some of it happens before the public even sees the IPO.

• QIBs are allotted proportionately when oversubscribed, with no lottery. If an institution applies for 10% of the QIB quota and it’s 10 times subscribed, it gets a scaled-down share
• Anchor investors are a subset of QIBs, picked by the company and its bankers on a discretionary basis before the issue opens
• Up to 60% of the QIB portion can go to anchors in a mainboard book-built IPO
• Anchor allotment is announced a day before the issue opens

Who Actually Runs It

The mechanics are handled by the registrar, not the company or your broker.

• After the close, the registrar prepares the Basis of Allotment, which sets out how shares were allotted category by category
• Only valid bids are considered. Errors like a wrong demat detail or PAN mismatch can knock a bid out before the lottery even begins
• Allotment is finalised on T+1, and shares reach winners’ demat accounts by T+2
• You can check status on the registrar’s website or your broker app

What You Can and Can’t Control

Few things affect the odds, but a couple of choices still matter.

• Make sure your application is valid, since a rejected bid has no chance at all
• Pick the category your application size genuinely fits, because each pool behaves differently
• Don’t confuse listing-day hype with allotment odds. A heavily subscribed IPO means a lower chance of getting shares
• Treat any allotment as a bonus, not an expectation, since retail odds can fall to a few percent in popular issues

FAQs

Q1. Is IPO allotment first-come, first-served?

No. After the issue closes, a registrar allots shares using SEBI’s category rules, and for oversubscribed retail portions a computerised lottery decides who gets shares.

Q2. Does applying for more lots improve my chances?

Not in a heavily oversubscribed retail pool. Every valid application has the same chance in the lottery, so a bigger bid only blocks more of your money for longer.

Q3. What happens if an IPO is undersubscribed?

If a category isn’t fully subscribed, everyone with a valid bid in it is allotted in full. The lottery only comes into play when applications exceed the shares reserved.

Q4. How are anchor investors chosen?

The company and its bankers pick them on a discretionary basis before the IPO opens. They’re a subset of QIBs, and up to 60% of the QIB portion can be reserved for them.

Q5. Why do sources describe NII allotment differently?

Because the rules combine a minimum application size, a possible draw of lots and proportionate allotment. Explanations differ on which applies to small and big NII, so check the issue’s basis of allotment.