Maximize the chance of IPO Allotment

IPO is not at all new and many of us might have already applied for an IPO recently or in the past. However, despite applying for so many IPOs, you may not have received allotment yet. IPOs of high-growth companies tend to be heavily oversubscribed, and only the lucky ones who are selected in the lottery get an allotment while others do not. Are you fed up subscribing to IPOs due to non-allotment, this article is for you. Let’s understand the reasons for no allotment along with some useful tips and tricks on how you can increase the chance of IPO allotment.

Tips on How to Get IPO Allotment?

Attractive IPO listing gains are encouraging more and more investors to apply for an IPO, but very few of them get an allocation. Let’s discuss some tips and tricks you can follow to get an IPO allotment;

Apply for one lot only

It is a myth that applying for more than one lot or a larger number of shares will increase the likelihood of allotment in the IPO. Many retail investors still believe this and end up placing large bids for IPOs they are interested in.

However, when an IPO is oversubscribed, the registrar allocates a lot to the maximum number of retail bidders. The allotment is done through a computerized lottery system.

Let us understand through an example why applying for more lots does not increase the allotment for the IPO.

IPO shares offered = 10,000 shares

Issue price = 600

Lot size = 25 shares

Minimum IPO application size = 600 * 25 shares = Rs 15,000

IPO Retail reservation = 30% i.e. 3000 shares

Maximum number of retail investors eligible for allotment = 3000 shares/25 shares (1 lot) = 120

The company will allot 1 lot of 25 shares to 120 retail investors.

Now suppose the company has received 150 IPO applications from retail investors, but only 120 applicants receive an allotment through a computerised lottery system. Whether an investor has applied for only one ticket worth Rs. 15,000 or a larger number of tickets, say 13 tickets worth Rs. 195,000, the chances of being selected for allotment in the lottery are the same. Everyone who is selected will receive only 1 lot.

Motisons Jewellers IPO was the most subscribed IPO of 2023 with a total subscription of 173 and 135 times subscription in the retail category.

Looking at the basis of allotment (BOA) of Motisons Jewellers, it can be seen that 88% of the applications were received from retail investors for one lot (e.g. 250 shares) and the remaining applications were received for a higher number of lots (e.g. 2 lots, 3 lots, 4 lots etc.). However, the allocation ratio is the same for all application sizes: 5:424, regardless of whether it is 1 lot or 14 lots.

So the next time you submit a bid for an IPO, only apply for one lot.

Apply for IPOs from multiple Demat accounts

Only one IPO application is permitted per PAN number.

There are two things to keep in mind here when you are subscribing to an IPO. First, you cannot bid for an IPO from multiple demat accounts of your own as the PAN number will be the same. If you do so anyway, all your applications will be rejected or invalid for allotment.

Instead, you can use the demat accounts of your friends, family members or relatives to bid for an IPO. Since all these accounts belong to different parties with a unique PAN, all IPO bids will be considered valid for allotment.

If you apply from multiple demat accounts, you increase the odds of IPO allotment.

Always bid at the cut-off price

In a book building IPO, the company sets a price range for the IPO, e.g. 60-65 per share. Investors can bid at any price within this range.

To maximize the likelihood of an allotment, investors should always bid at the cut-off price. The cut-off price for an IPO is the upper or maximum price of the price range, in this case 65. The reason for this is that if an IPO is well received by investors and receives huge subscriptions. The company sets the allotment price at the cut-off price so that all applications made at a price lower than the cut-off price are rejected for allotment.

Avoid IPO subscription at the last moment

Do not take the risk of applying for an IPO at the last moment.

The subscription window for an IPO usually remains open for 3 days. However, many investors wait until the last day to subscribe to an IPO to check the subscription numbers of HNIs (High Networth Individuals) and QIBs (Qualified Institutional Buyers). You only apply for an IPO if there are a large number of subscriptions in these categories.

If you place a bid for an IPO at the last minute, there is a risk of a server error or a technical problem at the bank. Also, there are some banks that do not accept applications after 4 p.m. (cut-off time) on the day of the IPO closure. It is therefore better to apply for the IPO earlier to avoid the last-minute rush.

Place IPO bid without any Mistake

You need to be very careful when you apply for an IPO.

You must fill in your IPO application details correctly i.e. name, demat account number, category, IPO bid amount etc. If you make a mistake, your application will be rejected and you will not get any allotment.

Do not forget to approve IPO Mandate request

When you apply for an IPO through UPI, you will receive a mandate request on your UPI app to block the IPO amount in your bank account.

If you have submitted an IPO bid but have not accepted the mandate request, the application will not be valid. So apply for the IPO earlier and approve the mandate request before 5:00 pm on the closing date of the IPO, otherwise, you will miss the chance to get the IPO allotment.

Buy parent company’s share to apply in the shareholder category

Some IPOs may have shareholder reservations. It is therefore advisable to acquire the shares of the parent company and hold them in your demat account to be eligible to apply for the IPO in the shareholder category.

Further, shareholders can bid for an IPO in multiple categories i.e. firstly as a retail or HNI investor and secondly under the shareholder quota, which increases the chances of allotment of shares.

Why I did not get the allotment?

Let us now discuss some important reasons why you did not receive an allotment of IPO shares.

1. Huge oversubscription: Oversubscription is undoubtedly the most important factor for non-allotment. These days, many good IPOs are not only oversubscribed but are subscribed to a greater extent than the shares on offer. Let’s take a look at some of the highest subscribed IPOs in India.

Till date, Latent View Analytics is the most subscribed IPO in Indian history and has been subscribed 326 times, followed by Vibhor Steel tubes and Paras Defence which have been subscribed 320 and 304 times respectively. As these IPOs received tremendous response and were heavily subscribed by investors, the chances of allotment were very low.·      

2. Invalid completed applications: If there is any error in the IPO offer submitted, such as spelling mistake, wrong demat account details, invalid UPI ID, etc., your application will be rejected and no allotment will be made.

3. Last moment application: IPO applications made at the last moment may be rejected due to technical reasons and you will miss the chance of allotment.·

4. Bids at a lower price: If you have made an IPO bid at a price lower than the final issue price, which may be the cut-off price, you will not be considered for allotment.·      

5. Mandate not approved: If you have applied for the IPO but your mandate has not been approved before 5:00 pm on the last day of the subscription period, your application will be rejected.