Cracking IPO: Understanding Application Status, Allotments and Rejections!

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Hello, Traders and Investors!

Over the past month, there has been a notable increase in IPO activity, which has persisted and resulted in considerable profits for investors. This pattern strongly indicates the rising enthusiasm among investors for IPOs. If you’ve ever felt let down by missing out on an IPO allocation and are keen to comprehend why, you’re in the perfect spot. Let’s delve into the factors that lead to rejections or non-allotment of applications.

Before we deep dive into rejection reasons lets understand the IPO Application Flow:
Upon receiving your bid/order, we forward it to the exchange, which then transmits it to the Sponsor Bank (appointed by the issuer company to handle IPO fund collection). The Sponsor Bank subsequently sends the payment instructions to the applicant’s (investors/user) bank through NPCI’s UPI framework. Our role primarily involves accepting your bid/order and pushing it to the exchange and keeping you informed about your application status as and when updates arrive from the exchange. The entire process is automated and integrated between brokers, exchanges and banks using APIs.

If fortune favours, you’ll receive an allotment of shares and the amount blocked will be debited from your bank account. You will receive a message from your bank for debit or a message for revocation of mandate when you do not get an allotment. You will also receive a message from RTA. The shares allotted will then reflect in your Demat account. You will also receive a message from CDSL when shares are credited to your demat account. You may choose to hold onto them or opt to sell on the listing day.

Now, let’s thoroughly examine the potential scenarios for not securing an IPO allotment:

(a) Rejection of Application: Your IPO application may be invalid and rejected due to the following reasons:

1. Multiple applications using the same PAN:
Submitting bids across multiple platforms using the same or different BOID can lead to rejection. To prevent this, follow the thumb-rule of “One PAN - One application”.

2. Mismatch between PAN details and Demat account information:
While our users love dhan and there should be no reason for you to apply elsewhere, if you still end up making an application elsewhere using Dhan BOID, ensure that the BOID (demat account number) entered is correct. The CDSL demat account number (BOID) is a 16 digit number. First eight digits of your BOID are DPID and Last eight digits of BOID are your client ID. Mention full 16 digits account number in Demat account number/BOID field.

3. Mismatch between PAN details and Bank account information:
Providing an UPI ID of another person / family member i.e. a third-party bank account’s UPI ID in the application might result in rejection. Ensure that the UPI ID that is mentioned in the IPO application is linked to your own bank account.

4. Incorrect UPI ID usage:
Verify and confirm the accuracy of the UPI handle to prevent typographical errors.

5. UPI Partner not Supported:
You can verify the list of apps and banks supporting UPI IPO applications by visiting here.

6. Failure to approve the UPI mandate request on your UPI app:
Approving the UPI mandate before its validity is crucial in completing the IPO bidding process. The application will be rejected if the mandate is not authorised by 5:00 PM on the issue closing day. If there’s a significant delay in receiving the mandate, consider cancelling the application and re-applying.

7. Incorrect PIN entry or mandate is accidentally rejected during mandate authorization.
Ensure to enter the correct PIN during the mandate approval process. If there’s an error or you have accidentally rejected the mandate, consider cancelling the application and re-applying.

(b) Non-allotment: Despite a successful application, you may not receive an IPO allotment due to:

1. Over subscription:
When IPO demand surpasses the offered shares, a situation of oversubscription arises. For example, if a company plans to offer 1 lakh shares but receives applications for 5 lakh shares, the IPO is oversubscribed by 5 times. In such cases, a computerised lottery determines the allotment.

Remember, Dhan serves as a platform for IPO applications. We strongly recommend reading the DRHP before applying.

Would be happy to answer your questions on IPO. Feel free to post here!

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Hi @iamshrimohan, Good informatory post!

Could you please add how is allotment done in case of over subscription for different categories. Taking example of retail category, if issue is over subscribed 10 times, how will allotment be done to different bidders who have applied different lots (someone might have applied for 1 lot, someone else 5 and someone for full amount permitted).

If you could touch upon book building process as a whole, that would be great knowledge.

Thanks.

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Retail Category:

Allotments are based on subscription criteria. For instance, when a company launches an IPO of say 10,00,000 shares (in lots of 500 each). Now with this, a total of 2000 investors can be catered.

Case 1: 1500 investors apply for 8,00,000 shares. Since the Retail category isn’t fully subscribed, all investors will receive their full allotment.

Case 2: 2500 investors apply for 12,00,000 shares. In this oversubscribed case, it’s impossible to allocate at least one lot to each investor. Hence, allotment is determined by a computerized lottery system.

Case 3: 1500 investors apply for 12,00,000 shares. Here, each investor will receive at least one lot of 500 shares. The remaining 2,50,000 shares (10,00,000 - 1500*500) will be allocated proportionately among the investors.

NII Category (HNIs):

In cases of under-subscription, all investors will receive their full allotment. Any unsubscribed portion of the NII may satisfy excess demand from other categories.

In cases of over-subscription, each NII investor will be allocated a minimum bid lot as specified for that category, subject to share availability. Despite the Big NII category’s minimum subscription of Rs 10 lakhs, in oversubscribed situations, shares worth Rs 2 lakhs will be allotted—the minimum NII bid amount—similar to the Small NII sub-category allocation.

IPO Bidding Process:

Generally an IPO allotment is done based on the price discovery. In a typical scenario, the Lead Managers plot quantity and price together and establish a discovery price where their entire IPO could be subscribed. For instance, a company wants to issue 10,000 shares and below is the demand chart, the discovery price would be 102 as at that price all the supply of 10,000 shares would meet the demand for (3,200+2,600+2,300+2,200 = 10,300) shares

Quantity Price
3,200 105
2,600 104
2,300 103
2,200 102 Discovery Price
2,100 101
1,500 100

Note that there may be some variations in the allocation process, the above one is just one of an example (plain vanilla case). However, post the allotment, a company releases basis of allotment document which explains their entire process. For instance, find the basis of allotment document for DOMS here.

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FAQ: Mandate approved / rejected but status not updated or Mandate not received yet

As previously mentioned, Dhan is only an execution platform for IPO applications. The bids/orders placed by you are forwarded to exchange, which are subsequently transmitted it to the Sponsor Bank to enable processing of payment mandate to be triggered to the applicants. The process is fully integrated between brokers, exchange, banks and NPCI using APIs. There is possibility of delays on some occasions and it may be due to increased demand and application load. Dhan in fully dependent on response from exchange to get the application status and therefore there may be delay in update of status on Dhan. You may also note that the exchange accepts LIVE orders between 10:00 AM to 05:00 PM only. Bids/orders placed after 5:00 PM (OFFLINE bids/orders) are sent to exchange on the next day at 10:00 AM. Therefore, the mandates will be received by you for such OFFLINE bids/orders on the next day.

FAQ: No IPO Allotment, Yet Amount Not Unblocked

Your bank is expected to automatically release the blocked IPO amount on or before the mandate expiry date if you haven’t received an IPO allotment. Should your bank delay in releasing the amount, please address the concern by contacting ipo.upi@npci.org.in.

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Hi @iamshrimohan , Can I Know After getting confirmation from cdsl about ipo shares credited …how much time it will take to reflect in dhan

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@TraderGallery Apologies for delayed response, missed this thread. Currently as per SEBI guidelines, listing on the Exchanges has to be done in T+3 days (T being the closing date of the IPO). So after the allotment intimation (Credit SMS from CDSL), the very next day the security gets listed and is available on Dhan and for trading as well on the exchanges.