In recent years we have seen people’s interest have grown for IPO. All kinds of investors, including newcomers and seasoned traders, the HNI and institutions, are eyeing the IPOs. In the fiscal 2021 and till the end of August 2022, every IPO, good or bad, was oversubscribed.
We will see that there will be more IPOs in this year. But investors, who are applying for IPOs or thinking about investing in IPOs, may think about how they can get IPO shares if there is always such kind of rush to buy IPOs. Yeah, it is true. You cannot be assured of IPO allotment if it is always oversubscribed.
This article will show how you can increase the chance of getting an IPO allotment if it is oversubscribed. Let us discuss how we can increase the chance of getting an IPO allotment.
The allotment process followed by SEBI mentions that all IPO applications are given equal weight. It means applying for many lots through one application doesn’t assure you assured allotment. It also means that instead of making one large bid, your chances increase if the application can be divided into small bids, say, one bid for one lot. Following the rationale of SEBI, this makes your chances increase. In case of oversubscription, this tactic may come handy. But for IPOs that are not supposed to be oversubscribed, a large application helps to get a maximum number of share allotments.
Applying from more than one demat account will also increase the chance of getting an IPO. Any investor can have more than one account. SEBI has allowed any investor can apply from more than one account. But this tactic usually does not bring positive results in case of oversubscription. Because all the accounts are linked to the same Pan no. of the investor, thus, all these applications will be counted as one application when many are waiting for IPO allotments. What the investor can do is apply different IPOs of different persons who are close to the investor. Applying for IPOs, which are attached to different Pan nos., makes the application come from different investors. That way, the chance of getting the IPOs multiple times.
Bidding is a very important part of this IPO allotment process. The price of IPOs you are willing to pay the company for each share. Some companies come up with fixed-price IPOs. There you have to mention the only price mentioned in the prospectus. But many companies use the book-building process for IPO pricing. They mention a price range within which the IPO will be listed but do not mention any fixed price. In those cases, your bid is at the cut-off price. This shows that you are ready to pay any price for the IP within the specified range. These application bidding at the cut-off prices get priority. This is another way of increasing your chance of getting an allotment of an oversubscribed IPO.
Avoid the last-minute rush
Some investors wait till the very end and apply at the last moment to see the last-moment rush before applying for IPOs themselves. But this is not the right tactic. Because you may get stuck somewhere or due to some technical glitch online, you may miss the opportunity to apply for the IPO. Therefore, it is always better not to wait till the very end. Applying for an IPO with time in hand is always the best possible way to get an IPO allotment. It is a general idea that the HNIs (High Net Worth Individuals) and the QIBs (Qualified Institutional Buyers) tend to invest a high amount near the end of the period when the IPOs are open for buyers’ applications. Some investors want to see the trend of these big investors to create the application strategy. But that idea is risky. Therefore, it is better to apply for the IPO with enough time.
The application form filling procedure
Reading and understanding the company’s health from its financial and other data given in the prospectus are enough to take good time to digest. And another time-consuming part is filling up every minute detail on the form. When applying for an IPO, it is important to note that many IPO applications get rejected due to incomplete or wrongly filled applications. During the verification procedure. IPO applications get rejected, and money is returned to the investor. All the preparation and hard work go in vain due to incomplete or wrongly filled applications. Filling up multiple applications helps to get over the problem of rejection occurring from an incomplete application and wrongly filled application for overlooking small mistakes.
It is always better to apply within the first two days. All investors, old or beginners, should do that to avoid last-minute rush and mistakes. During form submission, there may be delays due to technical glitches, internet problems on the bank end or any other unforeseen reason. Applying within the first two days with correctly filled-up forms increases the chance of getting an IPO allotment.
A mandate request is found in the banking app or their website. This mandate request has to be approved by every investor while applying for IPO. This mandate request approval allows the bank to lock the amount necessary for IPO allotment from your account. Beginners and new investors miss to approve this mandate request and apply for IPO. Their applications automatically get rejected as the bank cannot block the required amount from the investor’s bank account.
Buy parent company shares
Another way of increasing the chance of getting the IPO allotment is to buy the parent company shares from the market beforehand. Many companies coming up with IPOs have their parent company listed in the market. Buy a minimum number of shares of the parent company when you come to know that the IPO is coming up. Shareholders of the parent company are always preferred when the IPO allotment occurs. This method gives you an extra edge during the IPO allotment procedure.
After you have taken all the measures mentioned above, you are already in an advantageous position and have increased the chance of getting IPO approval. Now, it is up to you to maintain the advantage till the last moment by submitting a correctly filled-up application. For this, you must verify every detail given in the application and check whether the entries are correct or not. A small mistake will be enough to reject your application.
An oversubscribed IPO is allotted through a lottery on which no one is sure of the outcome. But as the lottery is done after categorisation, following the tips mentioned above will surely increase the chance of IPO allotment.