Strategies To Boost Your IPO Allotment Chances

Have you ever dreamed of getting in on the ground floor of a new company? IPOs, or Initial Public Offerings, allow you to do just that. But snagging shares can feel like winning the lottery.

This blog uncovers the secrets of the IPO allotment process. We will also explore the quota system, ensuring you understand how your chances stack up against other investors.

But before delving deep, let’s take an overview of IPO – An IPO, which stands for Initial Public Offering, is the first time a private company offers its shares to the public for investment. It’s an essential event in the life journey of a company that marks its transition from being privately owned to a public entity listed on a stock exchange, i.e., the NSE and BSE in India.

Objectives of IPO

Companies pursue IPOs for several vital objectives. Some of them are listed below:

• The primary objective is raising capital. Companies gain access to a large pool of funds by selling shares to the public. This capital can be used for various purposes, such as funding expansion plans, developing new products or services, paying off debt, or acquiring other businesses.
• Going public can enhance a company’s reputation and visibility. Publicly traded companies are subject to regulations and reporting requirements, which can help gain investor’s confidence.

What is Quota in an IPO?

In an IPO allotment, quotas refer to the pre-determined percentage of shares reserved for different investor categories.

Retail Individual Investors

These are regular investors applying for a maximum of INR 2 lakh. They are generally allocated at least 35% of the total offering, but it can be as high as 50% depending on the IPO.

Non-Institutional Investors (NIIs)

These are high-net-worth individuals (HNIs) applying for more than INR 2 lakh. They do not have a fixed quota, and their allotment depends on the remaining shares after retail and QIB allocations.

Qualified Institutional Investors (QIBs)

These are institutional investors such as banks, mutual funds, and insurance companies. They are allocated a minimum quota, which can range from 10% to 60%, depending on the regulator’s approval and the type of IPO. (Book building or Fixed price)

Knowing the quota systems helps you understand your chances of allotment. Your chances might be lower if the retail quota is small and the IPO is heavily subscribed.

Procedure of Allotment

From here, we’ll focus on the Retail Investors applying for the IPO. The allotment procedure for an IPO can be broken down into three stages, i.e., Application, Allotment, and Notification.

Application

Investors submit their applications to invest in the IPO through their demat or bank accounts and specify the number of lots they wish to buy and the price they are willing to pay. As per the regulator, i.e., the SEBI, the application window for an IPO shall be kept open for at least three working days. Further, for mainboard IPOs, the minimum application value must be within the range of INR 10,000 to 15,000.

Allotment

• Once the application window closes, the registrar reviews the subscriptions received.
• If the IPO is undersubscribed, which means there are fewer applications than shares offered, investors will likely get all or most of the shares they applied for.
• On the other hand, if the IPO is over-subscribed, which means there are more applications than the shares offered, a computerised process determines how shares are allotted.
• In a minor oversubscription, investors receive a proportionate share of their application.
• In a large oversubscription, a lottery system is used for allotment of shares.

Post Allotment Notification

• Within a few days of the allotment process, investors are notified about the status of their applications via text message or email.
• This information is also available at the investor’s trading account or the registrar’s website.
• Successful applicants will have the allotted shares credited to their demat accounts, and the funds will be debited accordingly.
• Unsuccessful applicants will have their application money refunded, or in case of ASBA (Application Supported by Blocked Amount), the amount will be unblocked by the Bank.

How to increase the chances of Allotment?

The thrill of a successful IPO investment is undeniable. However, with popular offerings often experiencing massive oversubscription, many hopeful applicants end up empty-handed. While there is no guaranteed method, some strategic steps can improve your chances of allotment.

• Be picky about your IPO
  Do not get swept away by the IPO hype. Research the company thoroughly. Look for a solid business model, strong financials, and promising growth prospects. Less-hyped offerings with strong fundamentals might present a better chance of allotment than trendy companies with sky-high demand.
• Apply from multiple Accounts and avoid large-size applications
  A single large application might seem like a power move, but it is counterproductive in an oversubscribed scenario. The Registrar of the IPO issue will treat all retail investors equally, and in case of oversubscription, the first priority is to give at least one lot to all the applicants. So, a hefty application from one account will not give you an edge. Additionally, it is suggested to consider spreading your IPO investment across multiple applications using different demat accounts for example, of family members, or friends. This increases your chances of getting at least one lot in case of massive oversubscription. Further, never apply multiple times from the same demat account or PAN number; it will be a case of clear rejection.
• Do not play the Bidding Game
  There is a common misconception that bidding at the lower or upper end of the price range improves your chances of allotment. The reality is that it does not increase any chances. IPO allotment is a computerised process, and bids are irrelevant. Focus on applying at the cut-off price to increase your chances of allotment.
• Timing is the Key
  Technical glitches at the last minute can dash your hopes. Ensure you submit your application well before the deadline. Consider applying early at the opening window in case you’re applying on the last day, especially for highly anticipated offerings.
• Buy Parent Company shares
  Generally, if a subsidiary is planning an IPO, there is a Shareholder quota for those who own shares of the parent company. So, if you’re applying for the subsidiary company’s IPO, then consider buying at least one share of the parent company before the cut-off date to be eligible for the Shareholder’s quota.

Conclusion

IPO allotment might seem complex, but with the proper knowledge and strategy, you can increase your chances of success. Apply early, understand the quota system, and consider applying multiple applications via different PAN numbers. By following these suggestions and conducting deep research on the specific IPO, you will be well-equipped to navigate the world of IPO investing.

Frequently Asked Questions (FAQs)