Initial Public Offerings (IPOs) present a great opportunity for investors to participate in a company’s growth right from the beginning of its public market journey. However, due to the high demand for certain IPOs, many retail investors face challenges in getting share allotments. While the IPO allotment process is primarily based on a lottery system, there are some strategies that you can use to increase your chances. This article covers how you can improve your chances of getting an IPO allotment and offers key insights into the IPO listing time on listing day to help you plan your investments more effectively.
Understanding the IPO allotment process
The IPO allotment process is a method by which shares are distributed among investors who apply for them. In oversubscribed IPOs, where demand exceeds the number of shares available, allotment is carried out through a lottery system, particularly for retail investors. Here’s a step-by-step breakdown of the allotment process:
- Retail investor allotment: Typically, 35% of an IPO’s shares are reserved for retail investors. If the IPO is not oversubscribed, every applicant receives the shares they applied for. However, in an oversubscribed IPO, shares are allotted on a lottery basis.
- Pro-rata allotment: In cases where the number of shares applied for exceeds the number available, shares are allotted in proportion to the number of applicants.
- Book-building process: The final price of the shares is determined based on the demand from investors. The price is fixed within a range, and shares are allotted accordingly.
Understanding the allotment process is crucial to know how to improve your chances of getting shares, especially when an IPO is in high demand.
Tips to increase your chances of IPO allotment
While luck plays a role in the IPO allotment process, there are several steps you can take to enhance your chances of securing shares:
1. Apply for only one lot
Many investors mistakenly believe that applying for a larger number of shares increases their chances. In fact, applying for multiple lots in oversubscribed IPOs often reduces your chances. The system allots shares on a lot basis, so applying for a single lot (minimum number of shares) gives you a better shot at the lottery process.
2. Use multiple Demat accounts
Another strategy is to submit multiple applications using different Demat accounts. If you have family members with their own accounts, you can submit separate applications from each account, thereby increasing your chances of securing shares. Ensure that each account is linked to a unique PAN (Permanent Account Number) as duplicate PAN entries are rejected.
3. Opt for the cut-off price
When applying for an IPO, you can either bid at the cut-off price or choose your own price within the offered range. It’s advisable to select the cut-off price, which indicates that you’re willing to pay the highest price in the range set by the company. This approach maximises your chances of receiving an allotment.
4. Submit early
Submitting your application early during the IPO window can sometimes increase your chances of getting shares. While the allotment is based on a lottery system, applying early helps avoid potential last-minute system issues or errors.
5. Avoid technical mistakes
Many applications are rejected due to technical errors such as incorrect PAN details or mismatched information between your Demat and bank accounts. Always double-check your application to ensure that all information is correct before submitting it.
6. Use multiple ASBA accounts
Application Supported by Blocked Amount (ASBA) is a method through which your IPO application is processed. If you have more than one bank account, you can submit multiple applications using different ASBA accounts linked to your respective Demat accounts. This increases the number of entries and improves your chances.
7. Apply through retail and HNI categories
If you’re eligible to apply as a high-net-worth individual (HNI) in addition to the retail category, submitting applications in both categories increases your chances of getting an allotment. Each category has a reserved quota, and spreading your applications can help you secure shares even if one category is oversubscribed.
What happens after allotment: IPO listing time on listing day
Once the allotment is done, the next significant step is the listing of shares. The IPO listing time on listing day refers to when the allotted shares start trading on the stock exchange. Here’s what you need to know:
- IPO listing time on listing day typically starts at 10:00 AM (IST) on the day of listing.
- The listing price may be higher or lower than the issue price, depending on market demand and sentiment. This is called the “listing gain” or “listing loss.”
- Investors who receive allotments can choose to sell their shares on listing day or hold them for longer-term gains, depending on their investment strategy.
- Market volatility tends to be high on the listing day, so it’s important to monitor the market and make informed decisions based on your goals.
Conclusion
Securing an IPO allotment in a heavily oversubscribed issue can be challenging, but by following the strategies mentioned, you can significantly improve your chances. Applying for only one lot, using multiple Demat accounts, selecting the cut-off price, and avoiding technical errors are practical steps to enhance your odds of getting an allotment. Additionally, understanding the IPO listing time on listing day is crucial for making informed decisions about when to sell or hold your shares. While IPOs offer lucrative investment opportunities, it is essential to be well-prepared and knowledgeable about the process to maximise your potential gains.