What happens when an IPO is undersubscribed?

When an IPO is undersubscribed, it means investors did not apply for all the shares the company offered, as they were not confident enough to subscribe to the issue. In this case, the company may extend IPO dates or reduce the price band or withdraw the issue entirely.

1. Impact on Investors

If the issue still doesn’t get 90% subscription, all investor money is refunded.

2. If IPO barely meets the minimum subscription (just around 90%):

• Shares may list with weak sentiment.
• High chance of listing loss because the market already indicated low interest.

3. Impact on the Company

• The company does not receive the targeted capital.
• Expansion plans may be delayed.
• Reputation can be negatively affected, and future fundraising becomes harder.

4. What you should infer as an investor

• If an IPO is undersubscribed, it is often a red flag:
• Institutions did not find the valuation attractive.
• Market sentiment toward the business is weak.
• Promoters haven't convinced the market about growth prospects.