I’ve not been allotted any shares in the last five public issues. What am I doing wrong and How to increase IPO allotment Chances? Is there a WAY to get Confirmed IPO Allotment?
Investors often have questions and concerns when they don’t get allotted shares in IPOs. Whether you’re a novice or an experienced investor, the process of share allotment in recent IPOs has left many disappointed. Due to the overwhelming subscription rates, it has become increasingly difficult for investors to secure allotments. We frequently receive inquiries about the IPO allotment process, so we’ve compiled this comprehensive guide to explain the process. Hopefully, this explains the process while also helping to increase IPO allotment chances.
Understanding the IPO Allotment Process
To increase your chances of IPO allotment, it’s essential to have a thorough understanding of the process. While there is no guarantee of receiving confirmed IPO allotment, the following tips will bring you closer to your goal.
Tip 1: Familiarize Yourself with the Process
Before taking any steps to increase your chances of IPO allotment, it’s crucial to understand the process in detail. Prior to October 2012, the Securities and Exchange Board of India (SEBI) mandated registrars to allocate shares in the retail category on a proportionate basis in the event of oversubscription. This meant that investors who applied for INR 100,000 or INR 150,000 stood a chance of receiving more shares compared to those who bid INR 15,000. This approach worked well in IPOs where the demand was equal to or less than the available shares.
However, this process inadvertently favored larger applications when the demand exceeded the availability. High-net-worth individual (HNI) investors often directed their investments into the retail category to corner shares through grey market, which didn’t sit well with SEBI.
As a result, SEBI introduced a new IPO allotment process in October 2012, which treated all retail individual investor (RII) applications equally. Under the current system, applicants are allotted at least the minimum application size, subject to the availability of shares. Following this guideline, two broad scenarios emerge and the system works in both cases.
IPO Allotment Process in Case of Undersubscription
If the aggregate demand of shares is less than the number of shares available in the retail category, every investor will get full allotment, irrespective for their application size.
On a lighter note, the chances are high that an IPO isn’t investment worthy if there is not enough demand for it. In such a case, investors wouldn’t lose big time by simply following the herd and skipping the IPO altogether. Once in a while, there may be instances of a company’s business model not understood well by the market and in such cases, further research and discretion are highly recommended before applying in the public offer. At times, taking a long-term view and discarding temporary setbacks can also help.
IPO Allotment Process in Case of Oversubscription
In the event of aggregate demand exceeding the number of shares available, the registrar will try to accommodate everyone by issuing one lot to as many applicants as possible. According to the current guidelines, no allotment can be less than the minimum bid lot size.
Tip 2: Practical Expectations
Maximum RII Allottees = (Total number of shares available for RIIs)/Minimum bid lot
In oversubscribed IPOs, investors can realistically hope to receive a single lot. To provide a more comprehensive understanding of how IPO allotment works, let’s consider a real-life example. Here is a longer explanation of IPO allotment process with real life example.
Six Tips to Increase IPO Allotment Chances
Now that we understand the rationale behind allotment, it’s time to explore strategies to increase your chances of IPO allotment. Although there are limitations when there is high demand for IPO shares, you can still avoid pitfalls and optimize your allotment results. Here are six effective tips to increase IPO allotment chances:
Here are 6 main ways to increase IPO allotment chances. While there is no way to get confirmed IPO allotment, these steps are very helpful that you don’t get out of consideration for silly reasons.
#1 Avoid Large Applications
As mentioned earlier, SEBI’s current allotment process treats all retail applications (below INR 200,000) equally. This means that making a big application of INR 100,000 in the case of oversubscription doesn’t provide any advantage. Large applications only make sense in large IPOs where there is a reasonable expectation of the retail segment remaining undersubscribed.
For instance, consider the recent INR 4,326 crore IPO of Mankind Pharma, where every retail investor had a chance of receiving an allocation. While the reasons for this undersubscription were different, it serves as a good example.
#2 Utilize Multiple Demat Accounts
Since large applications are not advantageous, you can consider using the same amount to make multiple applications from different demat accounts. The probability of successful allotment increases six-fold when you submit six applications for single lots instead of making a single application for six lots. However, it’s important to note that these demat accounts must be linked to different PAN accounts. In other words, you cannot make multiple applications in your own name.
Encouraging friends and family members to open demat accounts and apply for upcoming IPOs is an effective strategy to increase IPO allotment chances. Opening new demat accounts is quick and easy nowadays, with several brokers offering free demat and trading accounts. Additionally, the e-KYC process takes just a few minutes.
#3 Always Bid At the Cut-off Price
This aspect can be a bit confusing for investors, as they often struggle to differentiate between price bids and cut-off bids. When you select a specific price, you indicate to the registrar that you are interested in buying shares at that price. On the other hand, a cut-off bid indicates that you are flexible and willing to buy at any price within the price band. The cut-off price is determined as the point of maximum demand.
For example, in a price band of INR 100-105 per share, bids below INR 105 per share will not be considered for allotment if the cut-off price is set at INR 105 per share. Therefore, retail investors should place their bids at either the cut-off or the maximum price to increase their chances of IPO allotment.
#4 Avoid Last-Minute Rush
Many investors rely on subscription levels in the high-net-worth individual (HNI) and qualified institutional buyer (QIB) categories before placing their bids on the last day. While this can provide valuable insight into how the IPO is perceived by these well-informed categories, it can also become a disaster if your bank’s internet banking is temporarily down. You may not have funds available in other bank accounts, and adding demat account details at the last moment can be time-consuming.
Although there is the option of filling out physical forms, it is not an effective solution when time is running out. Several banks stop accepting applications after 4 PM on the last day.
#5 Avoid Technical Rejections
IPO applications can be rejected on technical grounds without the investor being aware of the errors. Since January 1, 2016, all IPO applications must be made through the Application Supported by Blocked Amount (ASBA) mechanism. Most investors apply through net banking, which minimizes the potential for errors such as spelling mistakes, name mismatches, or inaccurate cheque details. However, applications can still be rejected on technical grounds. Even a simple discrepancy like different names in the bank account and PAN can result in a missed opportunity.
#6 Invest in Parent Company Shares
Another excellent option to increase IPO allotment chances is to have at least one share of the parent or holding company in your demat account. This makes you eligible to apply in the shareholder category, but it’s important to note that the shares of the parent company must be in your demat account on the date of the Red Herring Prospectus.
Read Also: Upcoming IPOs with Shareholders Quota
This strategy applies only when the parent company of the IPO-bound company is already listed and there is a reservation for shareholders in the parent company. In the recently concluded IPO of Ujjivan Bank, for example, the retail category was subscribed 48 times, while the shareholder category was subscribed only 4 times.
These are simple yet effective steps that answer investors’ frequent question of how to increase chances of IPO allotment and move you closer to confirmed IPO allotment.
Also, check our page of IPO allotment status for the latest updates. Happy investing!