What is an IPO Subscription & How Does it Work?

You may be interested in investing in an Initial Public Offering (IPO) as a new investor. Still, you may need to check IPO subscription status before investing to gauge the demand for IPO shares. Moreover, after applying for the shares, you might be curious about the status of your allocation. 

In this blog, we will discuss the IPO subscription procedure and how to verify the IPO’s subscription and allotment status. 

What is an IPO Subscription?

The procedure by which an investor applies for the shares of a company when they are first made available to the public is known as an Initial Public Offering (IPO). The goal of such an issue varies from company to company; some may use the proceedings to pay off debt, while others may use them to expand their operations. IPO subscription is the process in which the investor applies for the shares offered in the IPO. The investors specify the quantity and the price in their IPO application to subscribe to the IPO. The corporation offers its stock or shares to the public to raise money, and investors subscribe to these shares. This process is known as an Initial Public Offering (IPO).  

How Does an IPO Subscription Work?

The steps which are involved in IPO subscription are as follows-

1. Announcement – A prospectus that includes all of the firm’s information, such as its business model, financials, and the way the funds will be used, must be released when a company chooses to go public and seek money through an initial public offering (IPO). 

2. Setting The Price – The company must set the price of the issue at which they want to offer their shares to the public in a fixed price issue. On the other hand, in a book-building issue, companies specify a price range within which investors can bid for the shares.

3. Subscription Period of an IPO – The dates on which the investors can apply for an IPO must be announced. Generally, the IPO opens for 3 to 5 days.

4. Categorization of Investors –  In an IPO, there are different categories of investors, subject to different rules for participating in an IPO. Different types of investors are mentioned below:

• Retail Investors – These small investors can apply up to INR 2 Lakhs.
• Non-Institutional Investors – These investors are considered HNI individuals or corporate houses and invest large amounts.
• Qualified Institutional Buyers – This category includes banks, mutual fund houses, insurance companies, etc.
• Anchor Investors – These include large institutions that apply for shares before the issue opens for subscription for the general public.

5. Bidding – During this phase, the investors apply for the shares. They can specify the quantity and the price at which they wish to apply for IPO shares.

6. Status of Subscription – Real-time tracking of IPO subscriptions is possible. If the IPO is popular and the investor’s demand for shares exceeds the number of shares offered, the offering is deemed oversubscribed.

7. Allotment of Shares – The shares offered in an IPO are allotted to the investors in the following way:

• Allotment to QIB: Shares are allocated to QIBs at the discretion of merchant bankers. But if the IPO is oversubscribed, shares are allotted proportionately.
• Allotment to Retail Investors: If the IPO is undersubscribed or fully subscribed, retail investors receive the number of shares they applied for. On the other hand, if the IPO is oversubscribed, the investors will be allotted shares based on a lottery system.
• Allotment to HNIs: In case of an oversubscription, shares are allotted to HNIs proportionately.

8. Credit of Shares – The allotted shares will be credited to the investor’s demat account.

9. Listing – Finally, the shares get listed on the stock exchange and become available for trading for investors.

What is the IPO Process?

The significant steps of the IPO process are as follows-

1. Deciding the Issue Size – The first step would be deciding on the issue size or the amount of capital the company wants to raise.

2. Appointment of Underwriter – The company must appoint an underwriter or investment bank to handle all the regulatory procedures, which includes setting the price range and other due diligence.

3. Preparing DRHP – The next step would be preparing a Draft Red Herring Prospectus (DRHP), which contains all the company’s business details and financials.

4. Submission of DRHP– The DRHP is filed with the Securities and Exchange Board of India to get regulatory approval.

5. Investor Presentation – The company identifies potential investors to present their future plans for the company and tries to convince investors to invest.

6. Pricing of the Issue – The issue price is set in a fixed price IPO, and in a book-building IPO, a price range is determined, and the issue price is set based on market demand.

7. Subscription Period – Typically, an IPO opens for subscription for a period of 3 to 5 days, during which an investor can apply for the IPO.

8. Allotment – Once the subscription period is over, the shares are allotted to the successful bidders and are credited to their demat account.

9. Listing – The shares are listed on the exchange and become available for trading for the investors.

How to Check IPO Subscription Status?

The steps to check the IPO subscription status are as follows-

1. Through Exchange – One can visit the websites of Indian stock exchanges, i.e. the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Select the Initial Public Offering (IPO) and review the subscription data for different investor categories.

2. Registrar – Another choice is to go to the registrar’s website, which manages the IPO allocation procedure and offers real-time subscription information. An investor can check the allocation status on the website as soon as the shares are allocated. 

How to Check IPO Allotment Status?

The process to check the IPO allotment status on the registrar’s website by following the steps mentioned below –

1. Registrar Website – Investors can visit the website of the relevant registrar and click on the IPO allotment status tab.

2. Select IPO – An investor must select the IPO from the drop-down menu.

3. Enter the Details – Enter the details such as PAN number, application number, or Demat account number.

4. Status – Click on the submit button, and you can review the status of the IPO application, whether the shares are allotted to you or not.

Conclusion

To sum up, as an investor, you need to understand what an initial public offering (IPO) is and the associated procedures. One must know how to track the IPO subscription status, and once the subscription period ends, monitoring application status is also essential. IPO does not ensure a guaranteed return because sometimes IPO shares get listed on the stock exchanges at a discount. Therefore, before making any investment decisions, you should assess your risk tolerance and speak with your financial advisor.

Frequently Asked Questions (FAQs)