How to Increase Chances of IPO Allotment?

Introduction

Let’s start this article by analysing the performance of some Initial Public Offering or IPOs launched in 2020. 

1. Rossari Biotech - This public issue was listed at a premium of 74.58%. While the issue price was INR 425 per share, the IPO listing price was INR 742. It was oversubscribed 79.37 times. 

2. Happiest Minds Technologies - This public issue was oversubscribed 150.98 times. Its listing price was INR 371 per share against the issue price of INR 166. Hence, investors made 123.49% profit within ten days (the time taken from IPO open date to the listing date).

3. Chemcon Specialty Chemicals Ltd - This public issue was listed at a premium of 72%. While the issue price was INR 340 per share, the listing price was INR 584.80. The issue was oversubscribed 149 times.   

By now, you must have understood how rewarding an IPO could be. However, if you scan the subscription status carefully, you will find that almost every new IPO is oversubscribed, meaning the chances of IPO allotment gets divided among the subscribers.

So, is there any way to enhance the odds of IPO allotment? The answer is ‘Yes,’ Move ahead in the article to know how to increase the chances of IPO allotment.

5 Foolproof Tips to Enhance The Odds of IPO Allotment

Here are the five time-tested tips to increase the chances of IPO allotment:

Limit Your Application to One

Many investors believe that if they apply with multiple Demat and bank accounts, their chances of IPO allotment increase. However, this is not the case. When you apply for an IPO, you have to enter your Permanent Account Number, or the registrar automatically fetches the PAN from the bank or Depository Participant (DP). All your stock market investments, including IPO, is linked to your PAN. Hence, if you make more than one application, all your applications would be summarily rejected.

Avoid Big Amounts if You Are a Retail Investor

Investors often believe that if they bid for a higher quantity (read, lots), their chances of IPO allotment will be higher. However, this is nothing but a myth. Generally, retail individual investors can apply for an amount of up to INR 2 lakh in each IPO. But, if the IPO is oversubscribed, your application will be subject to a lottery system, and higher lots do not mean higher chances of allotment. If you want to increase the odds of IPO allotment by applying for more lots, you can do it in a roundabout way. The next tip covers this in detail.

Use Multiple Demat Accounts to Increase the Odds of IPO Allotment

The topic heading might have confused you, as it contradicts point no. 1. However, there is one way to apply for more lots without facing rejection. You may use the Demat account of your friends and relatives to bid for multiple lots in an IPO. If you apply for one lot from the multiple Demat accounts, your chances of IPO allotment will be much higher than ordinary investors.

Never Bid at a Lower Price Than The Cut-Off Price

Companies often rely on a book-building process to determine the fair price of the stock. They set a range, and investors have to bid within that range. Cut-off price refers to the price at the extreme upper band of the range. So, if the price band of an IPO is 100 to 120, the cut-off price is 120. To increase the chances of IPO allotment, you must bid at the cut-off price. If you see the IPO is oversubscribed, it means everybody has bid at the cut-off price. Hence, if you quote a lower price, your chances of IPO allotment will be nil.

Take the Shareholder Route

If you invest in an IPO whose parent company is already available on the stock exchange, you may have an edge in getting on or more lots. If you are an existing investor in the parent or holding company, you may apply for one or more lots through the shareholder category. As a fact, while the retail portion is often oversubscribed, the shareholder segment might remain undersubscribed. Hence, the chances of IPO allotment will be higher for the shareholders of the parent or holding company.

The EndNote

Going by the IPO listing data of 2020, you can safely assume that getting shares through IPO allotment is the fastest way to grow your investment. Most of the companies listed in 2020 and 2021 have delivered gravity-defying returns in the shortest possible time. So, what are you waiting for? 

Create a Demat account with a no-frills broker like 5paisa and give wings to your IPO application. Don’t forget to follow the tips mentioned above to increase your chances of IPO allotment, though.