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As the IPOs get far more applications than the offer size, most investors return without any share; experts suggest ways to increase IPO allotment chances
Know How To Raise IPO Allotment Chances.
As more and more retail investors are turning to the stock market for wealth creation, they are also applying for IPOs for listing gains and for long-term investments. However, due to overwhelming demand and oversubscription, many investors fail to secure an allotment.
To enhance your chances of getting an IPO allotment, experts recommend strategic planning. Key strategies include leveraging multiple demat accounts and understanding the allocation quotas for different investor categories.
Understanding IPO Quotas
Sunil Shah, Group CEO and Director at Khambatta Securities Ltd, advises investors to adopt a calculated approach. He notes that IPO applicants typically fall into four categories:
1. Retail Investors: Individuals applying for shares worth Rs 2 lakh or less.
2. Non-Institutional Investors (NIIs): High net-worth individuals (HNIs) applying for over Rs 2 lakh.
3. Qualified Institutional Buyers (QIBs): Mutual funds, pension funds, FIIs, provident funds, and similar entities.
4. Incurred Investors: Institutional and other entities.
Each category has a specific quota:
– Up to 50% for QIBs
– Up to 15% for NIIs
– Up to 35% for retail investors
Within the NII category, there are two subgroups:
– Small NIIs (sNIIs): Investments between Rs 2 lakh and Rs 10 lakh.
– Big NIIs (bNIIs): Investments above Rs 10 lakh.
Shah explains, “The more the quota allocated to your category, the higher your chances of getting an allotment.” Notably, bNIIs enjoy a proportional allotment system, unlike retail investors who either receive one lot or none.
Distribute Applications Across Family Members
A common mistake investors make is applying for multiple lots using a single demat account and PAN number, which counts as one application. To increase your odds, apply separately using family members’ demat accounts and PAN numbers.
“Distributing applications among family members enhances the chances of securing shares,” Shah explains. “This approach significantly improves your odds in the competitive IPO allocation process.”
Leverage Multiple Demat Accounts
Another strategy involves using multiple demat accounts to apply. The more applications you make through distinct accounts, the higher your chances of allocation.
Exercise Caution with Grey Market Premium (GMP)
The ‘grey market premium’ (GMP) reflects the unofficial market’s readiness to pay a premium over the issue price. While GMP may offer insights into market sentiment, it’s not always reliable.
“Investors should avoid making decisions solely based on GMP,” warns Shah. “GMPs can sometimes be manipulated to create hype.” Instead, focus on the fundamentals of the company before applying.
Shah also emphasises that missing out on an IPO allotment isn’t the end of the road. “Stock prices often correct a few days post-listing, providing an opportunity to invest in fundamentally strong companies at a better valuation,” he says.
Key Takeaways
1. Apply through multiple demat accounts and distribute applications among family members to improve your chances.
2. Understand the IPO quota allocation for retail and non-institutional categories.
3. Avoid over-relying on GMP and focus on the company’s fundamentals.
4. Be patient; good investment opportunities often arise even after an IPO listing.
By adopting these strategies, investors can increase their likelihood of securing IPO shares in an increasingly competitive market.
