How to increase IPO allotment chances?

As mentioned above, SEBI’s current allotment process treats all retail applications (less than INR200,000) equally. This means there is no advantage of making a big application of INR100,000 in case of oversubscription. Big applications only make sense in large IPOs where there is reasonable surety of retail segment remaining undersubscribed.

A recent example is the INR11,372.64 crore IPO of General Insurance Corporation (GIC) where every retail investor stood a chance to get allocation. Although the reasons behind this undersubscription were different, it served as a good example.

Since large applications are ineffective, one can go for using the same amount in making multiple applications from different demat accounts. Probability of successful allotment increases to six times when one goes for six applications of single lots than making one application of six lots. It is important to understand that these demat accounts need to be linked to different PAN accounts. In other words, one can’t make more than one application in his/her own name.

Asking friends and family members to open demat accounts and apply in upcoming IPOs is a perfect method to improve IPO allotment chances. Opening new demat accounts is a breeze nowadays and several brokers open demat and trading accounts for free. What’s more, it is a matter of just a few minutes with e-KYC.

This is a tricky part as investors are often confused between price bids and cut-off bids. By selecting a specific price, investor tells the registrar that s/he is interested in buying shares at that price while cut-off simply conveys that the investor is flexible to buy at any price within the price band. This price is determined as the point of maximum demand.

As an example, in a price band of INR100-105 per share, no bids below INR105 per share will be considered in allotment if the cut-off price is decided at INR105 per share. Thus, retail investors should place their bids at either cut-off or maximum price to increase IPO allotment chances.

Many investors rely on subscription levels in HNI and QIB categories before placing their bids on the last day. This may be quite a smart way to figure out how an IPO is perceived by these well-informed categories but could turn out to be a disaster if your bank’s internet banking is down temporarily. One may not have funds in other bank accounts and additional work of adding demat account details may be required at the last moment.

Of course, there is always the option of filling up physical forms, this is hardly an effective solution at the last moment. Even if one manages to fill the form, it may be too late. Several banks stop accepting applications after 4 PM on the last day.

Read Also: Investors need IPO exit strategy, here is why

IPO applications may be rejected on technical grounds without the investor knowing about the errors. Starting 1 January 2016, all IPO applications are mandatorily through ASBA (Application Supported by Blocked Amount) mechanism and most investors apply through netbanking which minimizes potential errors of spelling mistakes, name mismatch, inaccurate cheque details. Nevertheless, applications are still rejected on technical grounds and something as simple as different names in bank account and PAN may result in a lost opportunity.

Here is another one and an excellent option, where applicable, to increase IPO allotment chances. Having at least one share of the parent or holding company in the demat account will make the investor eligible to apply in shareholder category. It should be noted that the shares of the parent company must be in the investor’s demat account as on the date of Red Herring Prospectus.

Read Also: Understanding employee and shareholder reservation in IPOs

Of course it applies only in the cases where the parent of the IPO-bound company is already listed and there is a reservation for shareholders in parent company. In the recent concluded IPO of Ujjivan Bank, retail category was subscribed 48 times while the shareholder category was subscribed only 4 times. Needless to say, chances of allotment are much better in the shareholder category. The icing on the cake is that one can place bids in both categories!