Listing companies on the stock market benefits both investors and companies. Investors can invest in promising companies that can accumulate funds to take their businesses to new heights. Many companies are thus going for initial public offerings (IPOs). These days, investors are also looking to invest in IPOs. Good companies with solid business models often tend to generate a significant amount of revenue in the long run. So, there can be a notable rise in their stock prices. Therefore, investors see massive potential in the upcoming IPO to invest. This results in the oversubscription of IPOs. Before moving on to the possible scenarios when an IPO is oversubscribed, let’s find out how and why it happens.
click here – Possible Effects of FIFA World Cup on Global Crypto Adoption
Oversubscription of an IPO
When a company decides to go for an IPO, it has to specify the quantity of shares to sell in the offering. This is known as the determination of the “offering size.” Offering sizes is a crucial step that a company has to deal with. The offering size has tremendous implications on the amount of money raised through the IPO sale. Moreover, the number of people who get the chance to invest in an IPO depends on the size of the IPO on offer. In addition, it also affects the premium price investors may have to pay. An IPO is oversubscribed when the number of shares offered falls short of the number of interested investors.
In other words, the upcoming Ipo to invest in becomes oversubscribed if more people subscribe to it than the number of shares available. An Ipo generally gets oversubscribed because of a few reasons. First, when the company reserves a greater portion of shares for institutional investors, the percentage for individual investors reduces drastically. Secondly, many investors may believe in the company’s future prospects and look forward to the IPO to invest in it. So, the demand increases, leading to oversubscription.
SEBI rules in case of IPO oversubscription
The Securities and Exchange Board of India (SEBI) is the governing body of the Indian share market. It also prescribes certain guidelines regarding the oversubscription of IPOs. The rules state that if an Ipo gets oversubscribed in the retail category, the allotment of shares must occur so that every bidder receives at least one minimum lot. So, if an investor is willing to get some shares in the upcoming IPO to invest, he should get at least one lotescribes certain guidelines regarding the oversubscription of IPOs. The rules state that if an Ipo gets oversubscribed in the retail category, the allotment of shares must occur so that every bidder receives at least one minimum lot. So, if an investor is willing to get some shares in the upcoming IPO to invest, he should get at least one lot. On the other hand, if the IPO is not too heavily oversubscribed, the company should follow this approach and allot one lot to as many investors as possible.
Some of the most popular initial public offerings (IPOs) are heavily oversubscribed.As there is quite a buzz in the market even before the subscription date, IPOs witness outstanding subscriptions. In such a case, the number of shares available naturally falls below the number of investors wishing to invest. Allotting even one lot of shares becomes impossible. So, a computer-based lucky-draw system comes into play here. The lucky draw allotted one lot to each of the maximum number of investors possible. The exercise determines who can and cannot obtain the shares.In most cases, some applicants are left out without any shares. Those who get them also receive a lesser quantity than they applied for.
click here – How To Invest In Real Estate From Anywhere In The World (Quincy Street Review)
What’s with the investors’ money?
For retail investors: If there is a small oversubscription of Ipo shares to invest in, investors get at least one lot of shares. In the huge oversubscription of the IPO, only some investors get shares. Once the share allotment period is over, the blocked funds are automatically unblocked.One will receive the money back in their bank account in a few working days.
For non-institutional bidders (NIB),
Investors who apply for more than Rs 2 lakhs in the Ipo receive proportional allotment.For instance, if there is 50 times the oversubscription in the NIB category and you applied for 50 shares, you will get one share.
For qualified institutional buyers (QIBs),
Financial organisations like banks, SEBI-registered mutual fund firms, and insurance companies are qualified institutional buyers (QIBs). Such institutions typically apply in large numbers to invest in any IPO.In general, 50% of the offer size is kept for QIBs. However, SEBI rules prohibit QIBs from withdrawing their bids after an IPO’s closure. They are also to avoid placing their bids at the cut-off price.
Conclusion
Ipo oversubscription is a result of a gap between demand and supply. It happens when more investors subscribe, exceeding the quantity of available shares. All investors may not get shares. Firms with a strong presence in the financial market can help investors in such situations. Firms like Share India provide facilities to invest in IPOs. You can quickly get all the details and track the IPO. All information pertaining to your subscribed IPO is available in real time without delay. So, investors can conveniently invest in IPOs.