Preferential Allotment
An issue of shares to a selected group of investors rather than to all shareholders or the public.
How it is identified
Test: shares are issued to identified persons under a special resolution, at a price not below the floor set by SEBI's pricing formula
Unit
qualitative
In depth
Preferential allotments raise capital quickly from a strategic or anchor investor without a public process, and they dilute existing shareholders who are not invited to participate. SEBI prescribes a minimum price based on recent trading averages, precisely to stop shares being issued cheaply to connected parties, and a lock-in applies to the allotted shares. Allotments to promoters attract additional scrutiny and a longer lock-in. The identity of the allottee is the informative part: a well-regarded institutional investor buying at a premium signals differently from a related party buying at the floor.
Worked example
A preferential allotment of 6 crore shares to an investor in a company with 30 crore outstanding dilutes existing holders by 6 / 36 = 16.7%. Whether that is worthwhile depends entirely on the price and on what the money funds.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Preferential Allotment” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.