IPO listing gains attract many, but few get the allotment: Here's how to increase your chances of IPO allotment

There has been a trend lately, especially among retail investors, to apply for an initial public offering (IPO). Some prefer to sell it immediately after listing, while some prefer to hold it for a longer period. The number of people who wish to take advantage of any possible listing gains after the shares are listed on stock exchanges is substantial. Some investors try to accumulate shares of a company for the long term during an IPO for a lesser price.

“An interesting trend that we observed in 2023 is that while a large pool of investors is only focused on getting IPO allocations and listing gains, there is a much greater opportunity after the IPO is listed. Several IPOs have given better returns ranging Between 50% “The value of the stock reaches 140% after the initial listing stage,” says Gopal Kavalireddy, vice president of research at FYERS, a stock broker.

Here's how investors can increase their chances of getting an IPO allotment

There has been a heavy demand for IPOs, as evidenced by the high percentage of oversubscription in main board and SME board IPOs. The higher the number of subscribers, the lower the chances of getting the share allotted.

According to Sandeep Raichura, CEO, of Retail Broking & Distribution, and Director, Prabhudas Lilladher, a stockbroker, “The idea behind the entire IPO allocation mechanism is designed around ensuring fairness especially when there are oversubscriptions, and an elaborate mechanism is in place to allot applications."

So, is there a way to increase the chances of stock awards during the IPO? Raichura shares some tips for increasing the chance of winning the IPO allotment:

Increased number of applications: You can put applications for all adult family members with active demat accounts.

Investment for the minor child: An investor can consider opening up a demat account in the name of the minor child and applying for a public subscription through this account.

“It is required to open a demat and a bank account in the name of the minor. The age of the minor should also be above 15 years as this will help him in accessing online banking and also creating a UPI ID. UPI La definition is “Necessary for IPO applications if the application is not used Backed by Block Amount (ASBA) process to apply for an IPO. Using UPI, a minor can apply for up to Rs 5 lakh shares in an IPO,” says Raichura.

Raichura says that payment avenues (ASBA, UPI, etc.) don't decide the chances of allotment, as they are a separate mechanism altogether.

Hindu Undivided Family (HUF): If it is possible for the investor, a separate demat account can be opened specifically for HUF and IPOs can be applied from this account.

“HUF gets 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 special categories Others like “An example of this is during the IPO of LIC, which also had a class of LIC policyholders,” says Raichura.

The registrar of the IPO issue checks the uniqueness of the IPO application based on the given PAN number. “The uniqueness of the PAN number is verified only if it is applied under the retail category and HNI category and is not used when the IPO has shareholders or employee quota. Therefore, an individual can apply for an IPO under the retail quota and shareholder/employee quota. However, an investor cannot apply for retail and HNI shares in the same IPO, says SP Toshniwal, founder, of ProStocks, a stockbroker.

Using this concept, stated above an individual can submit up to five IPO applications if the respective IPO issue has an employee and shareholder quota. “An individual can apply using his own PAN under retail quota and HUF's PAN under retail or HNI quota. Technically, an individual can apply for 5 IPOs - Retail or HNI, Employee, Shareholder, HUF Retail or HNI, Shareholder HUF". says Toshniwal.

“Retail retail investors are investors who are applying for securities worth up to Rs 200,000 only,” SEBI said.

Why are retail investors flocking to apply for an IPO?

Experts say that retail investor interest in applying for an IPO has surged in recent years. “In recent years, I have seen that many retail investors, especially younger ones, are interested in applying for IPOs. Some investors try to build their portfolio by acquiring shares at a cheaper price because most IPOs (there are always exceptions) are listed at a 'high premium. “There are also some opportunistic investors who apply for the IPO for the sole purpose of selling it at a premium after the stock gets listed,” says Kartik Parekh, SEBI Registered Investment Advisor (RIA).

When the data for IPO subscription is looked at, it is clear that mainboard and SME IPOs receive significant interest from retail and other investors. “The largest IPO by issue volume in 2023 was Mankind Pharma with a subscription rate of 15.3 times. Three major IPOs recorded subscription rates of more than 100 times. The most noticeable aspect of SME board IPOs was the subscription rates of Subscribe. 51 of 166 companies “saw subscription rates over 100 times, and 12 companies saw over 300 subscription rates. This size of subscription rates has been unheard of in many IPOs until now. “Retail interest in some IPOs has exceeded all previously known subscription rates,” FYERS said in the aforementioned report.

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