Attracting many with IPO listing gains, but few secure allotment: Strategies to boost you IPO allotment odds
The article discusses the increasing trend of retail investor participation in IPOs and strategies to enhance allotment chances, including application methods, unique PAN verification, and demographic insights.
FollowIn recent times, there is a notable trend, particularly among retail investors, to participate in Initial Public Offerings (IPOs). While some opt to sell their shares immediately after the listing, others choose to retain them for an extended duration. A significant number of individuals aim to capitalize on potential listing gains once the shares are officially listed on stock exchanges. Additionally, certain investors seek to accumulate shares for the long term at a more favorable IPO price.
Gopal Kavalireddi, Vice President of Research at FYERS, a stock broker told the Economic Times, "An interesting trend that we observed in 2023 is that while a large pool of investors is only focused on getting the IPO allotment and listing gains, there is a much bigger opportunity after the IPO is listed. Several IPOs have given better returns ranging from 50% to 140% after the initial phase of listing."
Here's how investors can enhance their odds of securing an IPO allotment
The burgeoning demand for IPOs is evident through the significant oversubscription rates observed in main board and SME board IPOs. As the number of subscribers rises, the likelihood of securing an allotment diminishes. Sandip Raichura, CEO of Retail Broking & Distribution and Director at Prabhudas Lilladher, a stockbroker, explained to ET, "The idea behind the entire IPO allotment mechanism is designed around ensuring fairness especially when there are oversubscriptions, and an elaborate mechanism is in place to allot applications."
Is there a method to boost Your chances of IPO share allotment?
To expand the number of applications, you can submit applications for all adult family members possessing active demat accounts.
Regarding investing for a minor child, an option is to establish a demat account in the minor's name and apply for IPOs through that account.
"A demat and a bank account in the minor's name is required to be opened. Also, the Minor should be above the age of 15 years as this will help the minor to get access to net banking and also create an UPI ID. A UPI ID is essential for IPO applications if the application supported by the blocked amount (ASBA) process is not used to apply for the IPO. Using UPI, a minor may apply for up to Rs 5 lakhs of shares in an IPO," Raichura was quoted as saying by ET.
Raichura emphasizes that payment avenues such as ASBA or UPI do not influence the chances of allotment, as allotment processes operate separately.
For Hindu Undivided Families (HUFs), investors can consider opening a dedicated demat account for the HUF to apply for IPOs.
He told the publication, "HUFs get quotas under various categories to apply for an IPO including the RII category (Retail Individual Investors), NII category (Non-Institutional Investors - HNI and UHNI), etc. At certain times, the company may have other special categories like for example during the LIC IPO which also had an LIC Policyholders category."
The IPO registrar verifies the uniqueness of the IPO application based on the quoted PAN number. According to S P Toshniwal, founder of ProStocks, this uniqueness check applies only to applications under the retail and HNI categories and is not applicable when applying under the shareholder or employee quota. Consequently, an individual has the flexibility to apply for an IPO under both the retail and shareholder/employee quotas. However, it's important to note that an investor cannot simultaneously apply under both the retail and HNI quotas for the same IPO.
Applying this concept, an individual can submit up to five IPO applications if the IPO issue includes employee and shareholder quotas. Specifically, an individual can apply using their PAN under the retail quota and under an HUF's PAN under either the retail or HNI quota. In essence, this allows for five potential IPO applications: retail or HNI, employee, shareholder, HUF Retail or HNI, and HUF shareholder, as explained by Toshniwal.
SEBI defines retail individual investors as those applying for securities worth up to Rs 2,00,000.
What is causing retail investors to rush to apply for an IPO?
Retail investors' interest in applying for IPOs has surged in recent years, according to experts. Kartik Parekh, a SEBI registered investment advisor (RIA), told ET that there is a growing trend among retail investors, particularly younger ones, who are keen on participating in IPOs. Some investors aim to diversify their portfolios by acquiring stocks at initial offering prices, which often result in listing premiums. Additionally, opportunistic investors apply for IPOs with the intention of selling them at a premium following the stock's listing.
Analysis of IPO subscription data reveals significant attention from both retail and other investors, spanning mainboard and SME board IPOs. In 2023, Mankind Pharma's IPO, the largest by issue size, witnessed a subscription rate of 15.3 times. Three mainboard IPOs surpassed subscription rates exceeding 100 times, indicating substantial investor interest. SME board IPOs also attracted attention, with 51 out of 166 companies experiencing subscription rates exceeding 100 times, and 12 companies surpassing 300 times. This unprecedented level of subscription rates underscores the heightened retail interest observed across various IPOs.
