IPO Surge in Stock Markets: How the Allotment Process Works and Tips to Improve Your Chances of Getting Shares”
The stock market has seen a steady increase in IPO activity over the years, with both large and small companies going public to raise funds for expansion or debt reduction. Due to the high returns often associated with IPOs, many investors rush to participate, making competition fierce. So, how does the IPO allotment process work, and what can you do to improve your chances of getting shares? Let’s break it down.
IPO Process:
- SEBI Approval: A company applies to SEBI for approval to issue an IPO and bring in shareholders. Once approved, the subscription process begins.
- Price Range Finalization: Before the IPO opens, a price range is set for the shares (e.g., ₹50-60). Based on investor demand, the final price is decided. In case of oversubscription, the final price is usually set at the higher end of the range (₹60 in this example).
- Subscription Period: IPOs are typically available for three to five days. Investors can place bids within this period. There are three categories of investors: Retail Individual Investors (RII), Qualified Institutional Buyers (QIB), and Non-Institutional Investors (NII). Investors must submit bids within the specified price range.
- How to Apply: You can easily apply for an IPO through brokerage apps like Zerodha, Angel One, Upstox, or Groww. All you need is a demat account. Once you select the desired IPO, you’ll enter the bid price, lot size, and your UPI ID to complete the application.
- UPI Authorization: After applying, you’ll receive a notification in your UPI app to authorize the amount. The amount corresponding to the number of shares you’ve bid for will be blocked in your account until the allotment process is complete.
- Price Finalization: Once the bidding process ends, the company, along with its lead managers, will finalize the share price. If the IPO is oversubscribed, the price will be set at the higher end of the range.
- Allotment Process: The registrar is responsible for the allotment of IPO shares, following SEBI regulations.
- Retail Allotment: In case of oversubscription in the retail category, shares are allotted through a lottery system. The goal is to allocate at least one lot to each applicant, but in highly oversubscribed issues, not everyone will get shares.
- NII and QIB Allotment: In these categories, allotment depends on the size of the bids placed.
- Post-Allotment: After shares are allotted, they are transferred to the demat accounts of successful applicants. For those who did not receive shares, the blocked amount will be unblocked and returned.
- Listing: Once shares are transferred to demat accounts, they are listed on the stock exchange. From that point, the share price can fluctuate based on market demand.
How to Increase Your Chances of Getting Shares
Retail allotment is done via a lottery system, so there’s no guaranteed way to secure shares. Submitting multiple applications through the same PAN card won’t improve your chances, and may result in rejection of duplicate applications. However, you can increase your odds by applying through separate demat accounts of family members, like your spouse, parents, or siblings.
The higher the demand for an IPO, the more difficult it becomes to secure shares, as many IPOs are oversubscribed multiple times. However, in cases of 100% subscription, all applicants are likely to get shares. In recent years, though, oversubscription has become common, making share allotment more competitive.
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