Oversubscribed IPO: What happens if the IPO is oversubscribed?

What happens if IPO is oversubscribed?

What is meaning of Oversubscribed IPO?


An IPO i.e Initial public offering is said to be oversubscribed when the number of applications is higher than the shares available for allotment. Normally, over-subscription occurs when the number of shares supplied through a company is not enough to meet the demand.
Let’s take a look at what happens if the IPO is oversubscribed?

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What happens if the IPO is Oversubscribed?


Let’s take an example, a fixed number of shares offered in an IPO are 5,000 shares.
At 20 times over-subscription means investors’ demand is about 2 Lakh shares.
If the demand exceeds the supply, the issuing company can charge a higher price resulting in more capital raised for the issuer.
In this condition, underwriters can use the greenshoe option.
Normally, the greenshoe option allows underwriters to issue 15% more shares than officially planned.
Let’s take a look at how companies allot shares in this scenario.

Also Read IPOs Definition | Types of IPOs | Fixed Price vs Book Building | Investors Types | Eligibility 2021

How to Get IPO Allotment?


The allotment of shares is done by predefined rules laid down through the SEBI.

There are few types of investors in the IPO,
for example, QIB i.e. Qualified Institutional Buyers,
NII i.e. non-institutional investors and RII i.e. Retail individual investors.

Investors are offered a specific number of shares in an IPO, which is determined by the company.
The process of allocating shares is different for every investor type.
While approximately 50% of shares are allocated to qualified institutional investors, approximately 35% of the shares are allotted to retail investors.

Most Oversubscribed IPO in India

Paras Defence and Space Technologies Limited’s2021273.05
Happiest Minds Technologies2020111
Burger King2020110
MTAR Technologies2020105
Sankhya Infotech2000283
Salasar Techno Engineering2017273
Capacit’e Infraprojects2017182
FCS Software Solutions2005176
Indus Networks2000174
Quess Corp2016144
Future Capital2008133
MAS Financial Services2017128
Dixon Technologies Ltd2017117
Advanced Enzyme2016116
Mundra Port2007115
Avenue Supermarts2017104
Happiest Minds Technologies2020151
Chemcon Speciality Chemicals 2020149
Source – Financial Express

The Bottom Line


Good IPO is very often oversubscribed, which means there is a high demand for that particular company’s shares.

This also exposes you to the fact that you could miss out on getting any shares and taking profit of listing gains made on an opening day in the stock exchanges.

Also Read Listing Gains in IPO | Highest Listing Gain IPO in India |IPO Listing Price