Investing in Initial Public Offerings is a delight for retail and institutional investors alike. With several IPOs scheduled to be offered shortly within the securities market, knowledge of the IPO allotment is critical in boosting the chances at which you could acquire shares. Here is an article about IPO allotment, with a step-by-step process for going about it productively, paying off, and maximizing your investments:
What is IPO Allotment?
The IPO allotment is the process by which new shares of a debuting company are assigned to those investors who apply for shares during a specified subscription period. Most often, because the number of applications around an IPO exceeds the number of shares available, allocation criteria are formulated and then administered by the regulatory authorities and the company going public.
A Step-by-Step on the IPO Allotment Process.
Step 1: Application for IPO
To apply for participation in an IPO, investors should apply for shares only through their Demat accounts and resort to their respective banks or brokerage firms for ASBA (Application Supported by Blocked Amount) services. Bids can be placed for shares within the price band laid down by the company.
Step 2: Input in the Subscription
Once the application is in, it is open to multiple different categories of investors, including retail, NIIs, and QIBs. If this category demand is more than what is available, such oversubscription calls for random allotment by way of lottery for retail investors.
Step 3: Finalization of Basis of Allotment
The finalization of the basis of allotment comes after the close of the subscription period. This includes:
- Verification of several applications to consider the invalid applications.
- Classification of the applicants into different investor types.
- Distribution of allotment by either way, i.e., proportionate or lot within oversubscription.
Step 4: Lottery System for Retail Investors
Allotment in case of heavily oversubscribed IPOs will be through a lottery system based on computerized drawings. Each valid retail investor application is assigned a unique number and shares are randomly allotted to ensure fairness.
Step 5: Proportional Allocations to Institutional Investors
As with QIBs and NIIs, the allotment to these goes on a proportional basis as per the number of shares applied for. Institutional investors usually receive a higher percentage of their applied shares compared to retail investors.
Step 6: Refund and Debit Process
In cases of allotment, the amount corresponding to it is debited from their bank accounts.
In case an application is unsuccessful, blocked funds will be released within a few days after the allotment finalization.
Step 7: Listing and Trading
The shares are then credited to the respective Demat accounts before listing day. With a start of trade on the stock exchange on the listing day, the investors can hold or sell off their stocks based on market conditions.
Factors Affecting IPO Allotment
Level of Oversubscription: The more oversubscribed the issue is, the poorer the allotment chance for every retail investor.
Size of Lot: Allotment in IPOs will happen in predetermined sizes of lots; applications outside of that size will not be considered.
Category of Investor: Priority in allotment to QIBs and NIIs is mostly over retail investors.
GMP: Grey Market Premium is an indicator of the hype around the IPO in the grey market, which may indicate where oversubscription levels will be.
How to Increase Your Chances of Getting IPO Allotment?
Multiple Demat Accounts: Applications through different accounts in the names of family members can augment the chances of allotment.
Bid at the Cut-Off Price: This keeps the application valid in the case of oversubscription for the IPO.
Do Not Make Large Applications in Retail Category: Instead of making a large application, it may be better to have smaller multiple applications for overbid IPOs.
Upcoming IPOs to Watch
Few more to come in a few months lined up as the Indian stock market goes for an IPO frenzy. Upcoming IPO from the fintech, pharma, and consumer goods sectors are among the anticipated offerings. Investors should constantly monitor announcements from stock exchanges to be aware of the latest IPOs.
Conclusion
With knowledge of the IPO allotment process, it can change one’s investment strategy and dramatically increase the chances of obtaining shares during popular sales. Using well-informed, strategic planning, investors can seize the upcoming benefits of having their stocks placed in an initial public offering.
Disclaimer
Investments in the securities market are subject to market risk, read all related documents carefully before investing. Margin Funding as subject to the provisions of SEBI Circular CIR/MRD/DP/54/2017 dated June 13, 2017 and the terms and conditions mentioned in rights and obligations statement issued by the Bajaj Financial Securities Limited.
Brokerage will not exceed the SEBI prescribed limit.
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