Reviewed on 24 Oct 2026 · Source: IPO Bulletin explainer; checked against SEBI ICDR Regulations 2018 (as amended) and allotment practice
Oversubscription happens when investors apply for more shares in an IPO than the company is offering. If a category is subscribed 5 times, applicants asked for five shares for each one available. When this occurs, not everyone can receive what they asked for, so allotment follows rules set by SEBI. In the retail category, a computerised lottery picks applicants who each get the minimum lot, which means many applicants receive nothing. In the QIB and NII categories, shares are allotted proportionately, so each bidder gets a smaller share of what it applied for, subject to minimum lot rules. Heavy oversubscription is read as a sign of strong interest, and it often lowers the retail allotment odds. A company can retain the oversubscription only up to the limits in the offer document; the greenshoe option, available in some issues, allows a stabilising agent to handle part of the excess demand after listing. Investors should remember that many bids are placed with borrowed money and are cancelled or reduced after allotment, so high figures do not always mean sustained demand. The reverse, undersubscription, means the issue is not fully taken up, and the company may fail to raise the minimum amount.
Example: A retail quota has 10,000 lots and receives 150,000 valid applications. That is 15 times oversubscribed, so about 1 in 15 applicants wins one lot in the lottery.
Oversubscription happens when investors apply for more shares in an IPO than the company is offering. If a category is subscribed 5 times, applicants asked for five shares for each one available. When this occurs, not everyone can receive what they asked for, so allotment follows rules set by SEBI. In the retail category, a computerised lottery picks applicants who each get the minimum lot, which means many applicants receive nothing. In the QIB and NII categories, shares are allotted proportionately, so each bidder gets a smaller share of what it applied for, subject to minimum lot rules. Heavy oversubscription is read as a sign of strong interest, and it often lowers the retail allotment odds. A company can retain the oversubscription only up to the limits in the offer document; the greenshoe option, available in some issues, allows a stabilising agent to handle part of the excess demand after listing. Investors should remember that many bids are placed with borrowed money and are cancelled or reduced after allotment, so high figures do not always mean sustained demand. The reverse, undersubscription, means the issue is not fully taken up, and the company may fail to raise the minimum amount.
Allotment is the step after an IPO closes in which the company decides who receives shares and how many. Once bidding ends, the registrar prepares the basis of allotment, which explains how the shares were shared between categories and applicants. If an issue is not oversubscribed in a category, most valid applicants get what they asked for. If it is oversubscribed, shares are rationed. In the retail category, successful applicants are chosen by a computerised lottery and each winner usually receives one lot, because the demand is far larger than the supply. Larger categories receive shares in proportion to their bids. After allotment, shares are credited to the demat accounts of successful applicants, and money for unsuccessful applications is released from the ASBA block. SEBI requires the whole process, from issue close to listing, to be completed within three working days. You can check your allotment status on the registrar's website using your application number, PAN or demat details, and on the exchange page for the issue.
Worked example
A retail quota has 10,000 lots and receives 150,000 valid applications. That is 15 times oversubscribed, so about 1 in 15 applicants wins one lot in the lottery.
