How to Increase Chances of IPO Allotment? Proven Tips & Strategies

Initial Public Offerings or IPOs from companies with strong business performance can be lucrative investment opportunities. However, the demand for such IPOs often far exceeds the number of shares being offered, making it challenging to secure an allotment. This makes it essential to understand how to increase chances of IPO allotment.

This article discusses proven tips and strategies that can help you improve your chances of securing an IPO allotment.

What is IPO allotment?

IPO allotment refers to the process by which a registrar (financial institution managing the offer) distributes a company’s shares to eligible investors who have applied for the IPO. The allotment depends on the size of subscription to the offer.

Depending on the number of subscriptions, an IPO can be classified as:

• Under subscribed: When the total subscriptions received from investors are less than the number of shares offered. If subscriptions fall below 90% of the offer, the IPO gets cancelled.

• Fully subscribed: When the total subscriptions are equal to the number of shares offered. Every applicant gets the full number of shares they applied for.

• Oversubscribed: When the total subscriptions exceed the number of shares offered. In such cases, allotment happens either proportionally (pro rata) or through a lottery system.

Every company with strong business fundamentals typically sees oversubscription, especially when market sentiment is bullish. Even companies with moderate performance can face oversubscription in such conditions. This is when the question arises: “How to increase IPO allotment chances?”.

How to increase chances of getting IPO allotment?

Investors can follow a few strategies to maximise their IPO allotment chances.

Apply through multiple demat accounts

This is definitely one of the most effective strategies to secure IPO allotment. In case of oversubscription, registrars allot shares in the retail category through a lottery system. By applying through multiple demat accounts, an investor can enjoy a higher probability of getting shares allotted.

As per the Securities and Exchange Board of India (SEBI) regulations, one Permanent Account Number (PAN) stands for one individual applicant. Therefore, investors willing to secure allotment need to apply through different demat accounts. Investors can leverage the demat accounts of spouses, parents, children, relatives or close friends to increase their chances.

Choose the minimum lot size

For retail investors, the maximum investment limit is ₹2 lakh. The lot size is the pre-defined minimum number of shares an applicant can bid for in an IPO. People often mistakenly assume that applying for the highest number of lots increases the chances of allotment.

However, in highly oversubscribed IPOs, this is rarely the case. Companies usually prefer to allot the minimum lot size to as many investors as possible to broaden their investor base. So, it is always advisable to bid for the minimum lot for IPOs that are expected to be highly oversubscribed. This approach increases the IPO allotment chances without blocking excess funds.

Bid at the cut-off price

Every IPO specifies a price band within which investors can bid. The cut-off price is the final price at which shares are allotted to investors. Once an IPO application closes, the registrar finalises the cut-off price during the book-building process. For oversubscribed IPOs, we can safely assume that the cut-off price is the upper limit of the price band. So, investors willing to secure allotment of an oversubscribed IPO should apply only at the upper price band.

Avoid bidding early

IPO applications remain open for 3 to 7 days. Companies with strong business fundamentals get oversubscribed within the first two days. It is advisable to avoid bidding at the beginning and watch out for market sentiment. If an IPO is oversubscribed within the first few days, investors can adopt suitable strategies. If they are not, then the strategy should be different.

Fill out the application meticulously

Registrars often reject many IPO applicants for incorrect information or incomplete applications. It is essential to fill out IPO forms meticulously, avoiding mistakes in information such as PAN, bank account number and demat account details. Today, investors primarily apply for IPOs digitally through online banking portals or brokerage firms’ applications. It is crucial to cross-check information provided before final submission of the application.

Take advantage of employees’ and shareholders’ quota

Many IPOs include special quotas for company employees and existing shareholders. Retail investors applying through these quotas get preference during final allotment. So, if you are planning to secure allotment for an oversubscribed IPO, try to convince existing shareholders or the company employees to apply using their own demat accounts. Once allotted, you can get the shares transferred to your demat account after making the payment.

Apply in the non-institutional investors (NII) category

NIIs are high-net-worth individuals and non-individual investors bidding for shares worth more than ₹2 lakh. Unlike the retail category, registrars choose to allot shares to the NII category on a pro-rata basis (proportional). It means that if the NII category is oversubscribed by five times, the registrar chooses to allot one-fifth of the actual number of shares each NII applied for.

Conclusion

It is crucial to understand that the tips and strategies discussed on how to increase chances of IPO allotment do not guarantee allotment. These tactics have been successfully used by investors in the past. However, they may not work every time. Investing in IPOs requires careful research, due diligence and informed decision-making.