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;
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
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.
Only one IPO application is permitted per PAN number.
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.
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
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.·
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.
Frequently Asked Questions
If I want to check the exact reason why IPO was not allotted, how can I do that?−
Many times, you may not receive IPO allotment and it’s common for oversubscribed IPOs. Note, although, you cannot find the exact reasons but here are the possible reasons that you should look for, if you did not receive shares allotment:
Oversubscription: First check if the IPO you have applied for is oversubscribed. When a company receives higher number of shares applications than the shares offered, it is called oversubscription. In case of oversubscribed IPO, not all applicants will get allotment.
Incorrect application details: Check that your application was successful or not. If you furnished incorrect details in the IPO application form, your application will be rejected.
In all of the below cases, your application will be rejected:
If you entered incorrect UPI ID
Your bank account does not have enough balance for the IPO application.
Bids at a price lower than cut-off price: You will also not get allotment, if you have placed an IPO application at a bid price, lower than the cut-off price.
Others: If you did not accept the UPI mandate request before the cut-off time, or sometimes, if you apply at the last moment, your application may be rejected.
Compare Stock Brokers Comparison & Features
Advit Jewels IPO Review: GMP, Financial Performance & Valuation
A complete guide on how to apply in an IPO through UPI
Ways to increase the chance of getting IPO Allotment
A complete guide on IPO, FPO, OFS, and Rights Issue of Shares
How can HNIs apply for IPO and share allotment process
IPO GMP Meaning, How it works, Kostak Rates, Subject to Sauda
Investing in Real Estate Investment Trusts or REITs explained