Undersubscribed IPO

In December 2025, KSH International closed its IPO without reaching 90% subscription. The same month, Phytochem Remedies withdrew its Rs 38 crore SME issue after getting bids for barely 62% of it. A few months earlier, Wagons Learning pulled its IPO at 8% subscription. In the middle of the loudest IPO boom India has seen, these issues still failed.

If you had applied to one of them, here is what happens to you, and what the failure is telling you.

Your money was never really gone

IPO applications in India run on ASBA: the application money is blocked in your bank account, not debited. If an IPO fails and is withdrawn, every application is cancelled, no shares are allotted, and the block is simply lifted. Your full amount is available again, usually within days. There is no refund process to chase because the money never left.

The 90% rule

SEBI does not let a company proceed with an IPO unless the offer gets bids for at least 90% of the net issue. The logic is protective. If a company set out to raise Rs 1,000 crore for a specific plan and the market offers Rs 300 crore, the plan cannot be executed, and investors who got shares would be holding something different from what the prospectus described. Below 90%, the issue is withdrawn and everyone starts over.

There is a safety valve before that happens: underwriters. Merchant bankers contractually commit to picking up an unsubscribed portion, a process called devolvement. If they make up the gap, the issue can still proceed. But devolvement is nobody’s idea of a good outcome. The underwriters own shares they never wanted, and the company lists with the market having just voted against it.

The QIB portion plays by harder rules

SEBI allows an undersubscribed retail or non-institutional portion to spill over into other categories. The QIB portion gets no such rescue. If institutions bid for only 60% of their quota, a retail book subscribed 30 times cannot fill the gap.

It gets stricter still for companies that do not meet SEBI’s profit track record test. They can list only through book building with at least 75% of the offer reserved for QIBs, and if that QIB minimum is not met, the entire issue fails and all money is refunded. For these companies, the number that decides everything is the institutional book on the last day, not the retail frenzy on the first.

What a failed IPO is telling you

An undersubscribed IPO is information, and it is worth reading rather than dismissing. Sometimes it is pricing: the band was set above what informed money would pay, and institutions, the participants with the deepest research, said so with their wallets. A weak QIB book is the sharpest version of this signal. Sometimes it is timing: a market selloff or a rate scare can sink a perfectly decent issue. Sometimes it is execution: a bad roadshow, a prospectus that raised more questions than it answered. The SME withdrawals of 2025 carried their own red flags, grey market signalling a flat listing days before close.

The distinction matters if you are looking at the company after listing. A good business that failed on timing can be worth a second look, possibly at a lower price. A business that failed because sophisticated investors read the prospectus and walked away is a different story entirely.

What it says about the market

Bull markets make undersubscription feel impossible. Every IPO is 50x subscribed, allotments feel like lottery wins, and the machinery of failure rusts from disuse. But the 90% rule, the underwriters, and the ASBA block are all still there, doing their jobs quietly in the background. The failures of the past year were mostly small and mostly SME, which is exactly when these rules matter most, because that is where pricing discipline is weakest. And when an IPO has an Offer for Sale at its core, remember that a failed issue there is not a company losing its growth capital. It is a seller who misjudged what the market would pay for their exit.

Read: IPO window

The system is designed so that a failed IPO costs you nothing but a few days of blocked money. What it costs the company is the truth about its price, delivered in public.