There has been a trend lately, especially among retail investors to apply for an IPO. While 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. There are also some investors who 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 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,” says Gopal Kavalireddi, Vice President of Research at FYERS, a stock broker.
Here’s how investors can increase their chance 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 Sandip Raichura, CEO of Retail Broking & Distribution, and Director – Prabhudas Lilladher, a stockbroker, “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.”
So, is there a way by which you can increase your chances of allotment of the shares during an IPO? Raichura shares some tips for increasing the chance of IPO allotment:
Increase the number of applications: You can put applications for all adult family members with active demat accounts.
Investing for Minor child: An investor may consider opening up a demat account in the name of the minor child 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,” says Raichura.
Raichura says that payment avenues (ASBA, UPI, etc) don’t decide the chances of allotment as that’s a separate mechanism altogether.
Hindu Undivided Family (HUF): If it is possible for the investor then a separate demat account specifically for the HUF can be opened and IPOs may be applied from that account.
“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,” says Raichura.
The registrar of the IPO issue checks the uniqueness of the IPO application based on the PAN number quoted. “The uniqueness of PAN number is checked only if applying under retail and HNI category and not used when the IPO has shareholder or employee quota. So, an individual can apply for an IPO under both retail quota and shareholder/employee quota. However, an investor cannot apply for both retail and HNI quotas in the same IPO,” says S P Toshniwal, founder, 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/her PAN under the retail quota and under HUF’s PAN under retail or HNI quota. Technically an individual can make 5 IPO applications: retail or HNI, employee, shareholder, HUF Retail or HNI, HUF shareholder,” says Toshniwal.
“Retail individual investors are those investors who are applying for securities worth up to Rs 2,00,000/- only,” said SEBI.
Also read: Why retail investors should avoid IPOs.
Why are retail investors flocking to apply for an IPO?
Experts say that retail investors’ interest in applying for an IPO has surged in the last few years. “In recent years I have seen that many retail investors, especially younger ones, are interested in applying for IPOs. Some investors are trying to build their portfolio by getting a stock at a cheaper price because most IPOs (exceptions are always there) list with a high premium. There are also some opportunist investors who apply for an IPO for the sole purpose of selling it at a premium post the stock’s listing,” says Kartik Parekh, SEBI registered investment advisor (RIA).
When the data for IPO subscription is looked at, it is clearly evident that both mainboard and SME board IPOs are getting a lot of attention from retail and other investors. “The largest IPO by issue size in 2023 was from Mankind Pharma with a 15.3 times subscription rate. Three main board IPOs clocked subscription rates greater than 100 times. The most visible aspect of SME board IPOs was the subscription rates. 51 of the 166 companies witnessed subscription rates more than 100 times, with 12 companies seeing more than 300 times. This magnitude of subscription rates across so many IPOs was unheard of till now. Retail interest in some IPOs has crossed all previously known subscription rates,” said FYERS in the said report.
