Price discovery of IPO

I always under perception IPO issue/allotment price will be CUTOFF price. SBI Life Insurance have applied at Rs. 690 since price range is in between 685-700 and as of today this IPO is under subscribed i.e., below 1%. If IPO close with under subscribed, Do I get shares allotted at Rs. 690 ? Please clarify.

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Technically IPO’s are rarely undersubscribed and FYI SBI LIfe is oversubscribed. Typically in IPOs, the issuing company appoints underwriters whose job is to find buyers for the shares and they also agree to assume the risk of buying unsold shares. So in case of an undersubscribed issue, the underwriters assume the unsold portion of the issue and hence the IPO will be fully subscribed and sail through.

According to guidelines an issue must be subscribed by at least 90% for it to list, if the issue fails to hit that limit even after the underwriter’s assurances the IPO will be scrapped and the amount returned to the bidders.

How is the allotment price determined?

All IPO applications are grouped into there categories.

  • Qualified institutional buyers (QIBs) - unlike the retail category there are no minimum lot sizes here and hence the allotment is decided proportionally.

  • High Net-worth Individuals (HNIs) - in case of HNIs if an issue is undersubscribed they will receive a full allotment. If an issue is oversubscribed the application size or the number of shares applied will be divided by the oversubscription number to determine the number of shares allotted.
    Ex Say if the application was for 200000 lakh shares and an issue was subscribed by 50 times then 4000 shares would be allowed.

  • Retail investors (RIIs) - It’s a bit tricky here. All retail applications will be grouped together to determine the demand for an issue. The number of allottees will be determined by dividing the total number of shares by the lot size (retail applications have a compulsory lot size value between Rs.10000 to Rs.15000). Ex. If 5000000 lakh shares are available and the lot size value is 15,000 then a maximum of 333 applicants can receive an allotment.

If the applications exceed the number of allottees then the allotment will be based on draw lots or computerized lottery.


So only overall subscription is considered and not category wise?
In the case of gic retail is subscribed only 50%. Overall subscription is 1.35 times.
So in retail category bids might be there from 855 to 912.
Will everybody in retail category get at whatever price they bid as it is not completely subscribed?
And for those who bid at cut-off will get at cut-off price only?

So HNIs are allotted shares proportionately right?
But my friend said he did not receive any allotment in Ujjivan SFB IPO despite applying under NII category. Assuming his application was not rejected on the basis of wrong info, what would be the reason he did not get any share?