How To Increase IPO Allotment Chances: Even as the stock market has been witnessing an uptrend, companies are flocking to the market to raise funds by launching their initial public offerings (IPOs). Amid surging share market, investors are also participating significantly in the primary market expecting handsome returns. However, as the IPOs get far more applications than the offer size, most investors return without any allocation, like in the case of DOMS Industries IPO.
In order to increase IPO allotment chances, experts say investors need to apply through various demat accounts and must analyse IPO quotas for various categories before applying.
Sunil Shah, group CEO and director at Khambatta Securities Ltd, said investors eyeing upcoming IPOs for potential gains should adopt a strategic approach to enhance their chances of share allotment. Investors typically fall into four categories: retail, non-institutional, institutional, and incurred investors.
“Given the current trend in the IPO bidding process, it is advisable for investors to carefully analyse the allocation portion for retail and non-institutional categories,” he said. The more the quota, the higher the chances of allocation.
IPO has a quota for various types of investors — up to 50 per cent for qualified institutional buyers (QIB), up to 15 per cent for non-institutional investors (NIIs), and up to 35 per cent for retail investors.
Retail investors include those who apply for Rs 2 lakh or less. NIIs are high networth individual (HNI) investors who apply for more than Rs 2 lakh. NIIs are of two types — small NII (sNII) who invest between Rs 2 lakh and Rs 10 lakh, and big NII (bNII) who invest above Rs 10 lakh.
QIBs include mutual funds, pension funds, FIIs and provident funds, among others.
An active market participant, who did not want to be named, said, “Chances of IPO allotment are higher in bNIIs (over Rs 10 lakh). In this sub-category, in case of oversubscription, you can get not less than the minimum sNII application size (Rs 2 lakh), subject to the availability of equity shares in the bNII portion.”
IPO allotment in proportion to your investment, unlike the retail category where you either get one lot or not at all.”
Distribute Applications Among Family Members
When you apply for 10 lots in an IPO through one demat and PAN number, it is considered one application. However, if you apply 10 lots separately through various family members’ demat and PAN numbers, it is considered 10 separate applications, thus increasing the allocation chances.
Sunil Shah said, “Distributing applications among family members increases the chances of securing shares. This thoughtful strategy ensures a higher probability of success in the IPO allocation process. Investors should pay attention to the number of shares available and study each offering diligently before deciding where to apply.”
He said that by adopting these practices, investors can make informed decisions to maximise their chances of being allotted shares in the competitive world of IPOs.
The market participant, said, “Apply through multiple demat accounts rather than just one account. The more the number of demat accounts, the higher the chances of allotment.”
He said that for example, in DOMS IPO, the chances for a retail investor getting an IPO allotment was one out of 52 applications.
Should You Blindly Follow GMP?
‘Grey market premium’ or GMP indicates investors’ readiness to pay more than the issue price. It is based on market sentiments and keeps changing.
Sunil Shah said, “Investors should not fall prey to the grey market premium around an IPO as it could be rigged at some time to attract investors’ attention. Also, it is advisable not to apply for any random IPO just because the current overall market sentiments are bullish.”
He said investors should carefully study the fundamentals of the company and then apply. “One should not regret not getting an IPO share as most stock price are correct after a few days of listing. So, there is always an opportunity to enter a fundamentally good company after listing.”
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