Updated on March 14, 2023
Oversubscription is when the company receives excess applications for its IPO issue against the number of shares offered in the issue. This indicates higher demand for shares than the available shares. It can also result in pushing the stock prices up in the open market. Another direct impact of an oversubscribed IPO can be listing gains for investors who receive shares in the final allotment.
Impact of Oversubscription on allotment of shares
When an IPO is oversubscribed, not all applicants can receive the allotment of shares. Therefore, SEBI has laid down specific regulations that are applied at the time of allotment to ensure the safeguarding of investors’ interests. These rules specify that:
Retail investors get a minimum allotment of 1 lot in case of oversubscription in this category and the balance shares if any are distributed on a pro-rata basis. However, this is applicable only in the case of a small over-subscription.
In case of substantial over-subscription, each successful applicant cannot be allotted even a single lot of shares. In such cases, a computer-based lucky draw is carried out for an issue of one lot each.