Indian primary markets have seen very high degree of oversubscriptions in the IPOs during 2007. The highest oversubscription was made in Religare Enterprises Limited—a financial services firm. This article studies the basis of allocation of shares in the IPO of Religare Enterprises as published by its Registrar to understand the level of rationing of shares to retail investors in India.

The Initial Public Offerings (IPOs) market in India has recently seen several scams in the allotment of shares. The Securities and Exchange Board of India (Sebi) has also imposed penalties on many market participants including the depositories, for failing to protect the interests of small retail investors. The purpose of the present article is to find out whether retail investors are benefitted from investing in hot IPOs (IPOs generating considerable interest amongst the investors as well as media) considering that if they are proxy to uninformed investors, they will be rationed out as demonstrated by the model of Rock (1986). The article also seeks to find out some possible reasons for the scams based on the allocation patterns. The number of retail investors participating in IPOs is an important parameter for both issuers as well as policy- makers.

Issuers look forward to the participation of retail investors so that the issue can be fully subscribed. Regulators like Sebi which are concerned that retail investors should invest in IPOs based on the fundamentals of the firm have introduced a grading scheme for IPOs. Unfortunately, literature on Indian IPOs has not covered the rationing of small investors by studying the basis of allocation in IPOs. This article studies the basis of allocation of shares in the IPO of Religare Enterprises as published by its registrar to understand the level of rationing of retail investors in India.

The literature on Indian IPOs has been mainly concerned with measuring the short-term and long-run returns. Narasimhan and Ramana(1995) analyzed 103 issues in the period from November 1993 to May 1994 and found that premium issues were much underpriced than at-par issues and that underpricing was not related to the time interval between the days of initial offer and first trading. Shah (1996) studied 2056 IPOs in the period from January 1991 to April 1995 and has carried out estimation of underpricing and verification of the different theories on underpricing in the Indian markets. Madhusoodanan and Thiripalraju (1997) studied 1922 IPOs from 1992 to 1995 and analyzed the long-run (upto three years' returns post-listing) performance of IPOs

Rationing of the Hot IPOs in India, Retail Investors, Initial Public Offerings, IPOs, Securities and Exchange Board of India, Sebi, Mutual funds, Non-Resident Indians, NRIs, Religare Enterprises Limited, REL, Non-Institutional Investors , NII.