Is IPO allotment based on luck?

IPO allotment is based on luck only when there is over subscription.

As per SEBI guidelines, each retail investor should get at least one lot subject to availability of shares. But, if the number of retail investors is more than the number to whom one lot can be allotted, the allotment is done based on lottery method. In the computerized lottery method, allocation is random and only the lucky ones receive an allocation.

The same rule is applicable for Non-institutional investors (NII), wherein each NII should get the minimum bid lot. Thus, if the number of NII applicants is less than NII allottees in case of oversubscription, first minimum one lot is allotted and remaining on pro-rata. However, if NII applicants are more than NII allottees, allotment happens using draw of lots along with pro-rata system.

In the case of QIB and other reserved category of investors, the allocation is made on a pro rata basis. Thus, if an investor's investment share is significantly less compared to the oversubscription, he/she may not receive any allotment.