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What is the Basis of Allotment for New IPOs – CARE Ratings, Bharti Infratel, etc for Retail Investors?

December 6, 2012

The Controversial Regulator of Indian Securities Market, SEBI on the 16th of August passed an order which will affect the Basis of Allotment in the Retail Individual Bidders Category. The SEBI Order said,

With a view to increase the reach of IPOs to investors across the country and affording minimum allotment to a larger number of applicants, the following measures have been approved:-

The share allotment system will be modified to ensure that every retail applicant, irrespective of his application size, gets allotted a minimum bid lot, subject to availability of shares in aggregate. The system will satisfy more number of smaller applicants in the oversubscribed issues. The minimum application size for all investors is also being increased to Rs. 10,000-Rs.15,000, as against the existing Rs. 5,000-Rs. 7,000.

Complete Illustration of the new Basis of Allotment for Retail Individual Investors is provided here.

So based on the above Set of Rules, Retail Individual IPO Bid Strategy must be as follows

For Small IPOs like CARE Ratings: Since the Retail Portion of the IPO will be Oversubscribed, allotment will be on the basis of LOTTERY. So in such cases do not Block Your Money and hence apply only near the Rs 15,000 Rs 20,000 Multiple so that you will have the same chance of being allotted as Rs 200,000 Application.

For Large IPOs like Bharti Infratel
If you have Rs 200,000 Apply so because the over-subscription chances is low and even if minimum lot is allotted to maximum number of investors, still some shares will be left to be allotted and thus Rs 200,000 applicants will stand to get these additional shares.

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