The 40-Share Allotment: Retail IPO Allocation in an Oversubscribed Book
Meera, a first-time retail investor, applies for 200 shares (five lots of 40) in the Rs 450-per-share mainboard IPO of a logistics company on the final day of bidding, using UPI-based ASBA through her bank. At close, the retail portion is subscribed 8.1 times and the issue overall 11 times. Her bank shows Rs 90,000 blocked in her savings account. On allotment day she receives an SMS: 40 shares allotted, Rs 72,000 unblocked. The shares are credited to her demat account a day before listing, and the stock lists at Rs 382. She calls her broker with pointed questions: why she got 40 shares instead of 200; whether she can sell on listing day; whether the notional loss of about Rs 2,720 can be recovered from the broker, company or registrar; and whether applying in the NII (non-institutional) category would have got her a full allotment. The broker also tells her that if nothing had been allotted, the UPI mandate would simply have lapsed, with no interest paid on the blocked amount.
1. Was a 40-share allotment the only possible outcome for Meera's application? Explain how allotment works in an oversubscribed retail category.
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The retail category, not the overall book, decides her fate. Retail was subscribed 8.1 times, so her proportionate entitlement is 200 / 8.1 = about 24.7 shares, which is less than one lot of 40. Under the retail allotment methodology, allotment is on a proportionate basis subject to a minimum of one lot; where the proportionate entitlement falls below one lot, the minimum lot is allotted by draw of lots. So the realistic outcomes for Meera were either 40 shares or nil - she happened to win the draw. Getting 200 was never possible in an 8.1x retail book.
The 11x overall figure is irrelevant to her; the HNI/NII portion, QIB portion and retail portion are allotted separately. Her suggestion about the NII category is also wrong: NII applications must be above Rs 2 lakh, are allotted strictly in proportion to the category oversubscription, and carry no minimum-lot lottery. Applying 200 shares there would still have yielded a proportionate slice, not the full 200, and would have required far more capital at risk. The lesson is that category-level oversubscription, lot size and the minimum-lot convention together determine the outcome, not the size of the application.
2. Trace the money and the shares from application to a sale on listing day. When exactly can she sell, and when does she receive the sale proceeds?
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Application stage. Under UPI-based ASBA, money is not sent to the issuer. The bank merely blocks Rs 90,000 in her account against the mandate, so she continues to hold the funds (without interest) until allotment.
Allotment stage. Once the basis of allotment is finalised, the bank debits only the allotment value - 40 x Rs 450 = Rs 18,000 - and remits it through the clearing system; the balance of Rs 72,000 is unblocked. If she had received nothing, the mandate would lapse and the full amount would be released. Any delay beyond the prescribed period is a valid grievance point.
Credit stage. The registrar allots shares in dematerialised form and they are credited to the demat account she specified in the bid, typically a working day before listing. She must therefore already hold a demat account with a DP; the shares carry the company's ISIN.
Sale stage. Because the shares are already in her demat account on listing day, she can sell them that day through any broker. India's T+1 cycle means the shares are paid in on the next working day and the sale proceeds are credited to her bank on the pay-out of that day. She is not required to hold the shares for any minimum period - the retail category has no lock-in (unlike anchor investors, who are locked in for specified periods).
3. Can Meera recover the listing-day loss from the broker, the company or the registrar? What circumstances would give her a genuine grievance?
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No. The IPO is sold under a disclosure-based regime: the prospectus discloses risk factors, and price discovery happens through the book-building process. Once shares are allotted, the market price on listing is a market outcome and the investor bears it. Neither the broker (a pure facilitator, remunerated by brokerage), nor the issuer, nor the registrar owes her a minimum listing price. A loss of Rs 118 per share on 40 shares, roughly Rs 4,720 on the allotted quantity (about Rs 2,720 if measured against the amount she had hoped to deploy), is simply market risk.
A genuine grievance would arise only from a process failure, for example:
- Allotment contrary to the stated basis, or shares allotted beyond the category limit.
- Shares not credited to her demat account, or credited to the wrong account.
- The blocked amount not released, or released late, after non-allotment.
- Money debited for shares she never applied for, or a bid altered without her authorisation.
Her route is: first the company's registrar or compliance officer (for allotment and refund issues), then SEBI's SCORES portal if unresolved, and exchange arbitration where the dispute is with a trading member. Note also that ASBA funds earn no interest, so there is no claim on that count either.