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Oversubscribed IPO Meaning

What is Oversubscription in an IPO?

In any given Initial Public Offering (IPO), the number of shares issued and the number of shares that investors apply for is rarely, if ever, equal. The subscriptions are always either above or below the number of shares issued via the IPO. This situation can lead to an oversubscribed IPO, where the number of applications received is greater than the number of shares offered.

What is Oversubscription in IPO?

Oversubscription of shares in an IPO is a phenomenon where the applications received from investors exceeds the total number of shares that the company plans to issue. For example, if a company decides to issue 10 lakh shares via an IPO, and applications have been received for 20 lakh shares instead, it is deemed as an oversubscribed IPO. The extent of IPO oversubscription is expressed as a multiple of the original number of shares issued. For instance, in the above example, the IPO is considered to be 2x oversubscribed.

What are the reasons for Oversubscription in IPO?

Oversubscription generally happens when a company is very popular among investors for various reasons. Here is a closer look at when an IPO may be oversubscribed:

  • If investors are eager to invest in the issue because of its potential
  • If the company has set an unrealistic price band

These scenarios lead to high levels of demand, often causing the number of applications to exceed the number of shares being offered. The result is an oversubscribed IPO.

How does Oversubscription in IPO work?

In an oversubscribed IPO, the demand exceeds the supply, so it is natural that investors will not be able to receive all the shares they bid for. Oversubscription can be short-run or long-run. In a short-run oversubscription, over 100% of the subscription is offered to investors, while in a long-run oversubscription, less than 1% of the IPO is oversubscribed.

When there is an IPO oversubscription, a company can either reallocate the number of shares or issue additional shares to meet the demand. In case of reallocation, the shares are allotted according to a fixed percentage for each category of investors, as follows:

  • Up to 35% of the IPO allocation for retail investors
  • Up to 50% for Qualified Institutional Buyers (QIBs)
  • 10% to 15% for Non-Institutional Investors (NIIs)

Which parameters are involved in IPO Oversubscription?

  • The Underwriting Firm

    If the firm underwriting the subscription has a good market reputation, investors may flock to the IPO. It can cause high levels of demand and a possible oversubscription of shares.
  • The Competition

    If too many companies in the same industry issue IPOs around the same time, the demand may be adversely affected. This minimises the possibility of oversubscription.
  • The Economic State of Affairs

    If the overall economy is on an upward trend, this may influence the demand for an IPO in a positive manner.

10 Most Oversubscribed IPOs in India

Check out the most oversubscribed IPOs in the Indian stock market to date.

Company Issue Size (in ₹ crores) Oversubscription Listing Date
Latent View Analytics Limited 600.00 326.49x November 23, 2021
Paras Defence And Space Technologies Limited 170.78 304.26x October 1, 2021
Salasar Techno Engineering Limited 35.87 273.05x July 25, 2017
Apollo Micro Systems Limited 156.00 248.51x January 22, 2018
Astron Paper & Board Mill Limited 70.00 241.75x December 29, 2017
Tega Industries Limited 619.23 219.04x December 13, 2021
MTAR Technologies Limited 596.41 200.79x March 15, 2021
Mrs. Bectors Food Specialities Limited 540.54 198.02x December 24, 2020
Capacit'e Infraprojects Limited 400.00 183.03x September 25, 2017
Tatva Chintan Pharma Chem Ltd 500.00 180.36x July 29, 2021

As an investor, you need to be aware that in case of an oversubscribed IPO, the chances of share allotment reduce drastically. To increase your chances of being allotted shares, you can apply for an IPO at the cut-off price, apply early and use multiple demat accounts to submit multiple applications.

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