Understanding IPO Oversubscription and Retail Allotment in India

Book Building – How IPO Prices Are Set

The majority of IPOs in India are book-built offers. Instead of fixing a price, the issuer sets a price band in consultation with lead managers. SEBI mandates that the cap of the price band should be 5–20% above the floor price. For instance, if ₹100 is the floor, the cap can range from ₹105–₹120.

During the subscription period, investors bid at a price within the band. The lead managers collect these bids to create the “book,” which helps determine the cut-off price – the highest price at which all shares will be subscribed. Retail investors (application up to ₹2 lakh) can bid directly at the cut-off price, while other investors often bid at the cap price. Typically, strong demand results in the cap price becoming the de-facto cut-off.

Retail Allotment in Case of Oversubscription

SEBI’s ICDR regulations detail how shares are allotted to retail investors when demand exceeds supply. We illustrate the process with two scenarios:

Investor Takeaway

Understanding the allotment process helps retail investors manage expectations in oversubscribed IPOs and plan applications more strategically. Knowing how cut-off prices and lot allocations work reduces uncertainty and allows for better decision-making.

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SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.