2021 can easily be considered the year of IPOs. A wide variety of companies across different sectors, products and revenue ranges have been offered to the public and subsequently, been lapped up with much fanfare.
How many times have you wanted to invest in the IPO of a company you heavily favoured or had high hopes of making money from but missed out due to over subscription or technical errors? You should know that this is highly avoidable by following certain tips and taking certain measures.
- Avoid Errors in the Application: Many applications get rejected due to minute errors. This is very preventable. Do not be hasty while filling up the application, take your time and fill in the details like account number, bank details, etc., carefully.
- Apply Through Multiple Accounts: Applying through multiple accounts increases your chances of getting allotted considerably. However, caution must be exercised while doing so. Each account that you apply with must have a different name and a different PAN ID linked to it. If you apply using the same ID, all of your applications get rejected. Using the accounts of friends and family is advisable.
- Apply in Time: It is generally advised to apply on the very first or second day so as to maximise your chances of allotment. However, if you wish to gain a sense of the level of over subscription, you could consider waiting a day or two.
- Avoid Big Applications: There is a time and place to be greedy, this is not it. Oftentimes, in cases of over-subscription, big applications are rejected. When you suspect over subscription, it is best to apply small and through several accounts. You should also take note of the percentage of the shares that are available to retail investors. In some cases, only a small percentage of the total shares issued are reserved for retail investors, the rest are reserved for other priority parties. If the retail investor reservation is small, say 10%, the chances of getting allotted come down considerably.
- Bid at Cut-Off Price: If the price band of a particular stock is announced at Rs.115 to Rs.119, it is advisable to invest at the cut-off price of Rs.119 to stay on the safe side. If it turns out that the stock is over-subscribed, bids below Rs.119 will not be considered which again leaves you without an allotment.
- Buy Shares of Parent Company: Another way to put yourself on a slightly prioritised list for allotment is to have the shares of the parent company of the issuing company in your account. This way, sometimes, you will be able to place bids as a retail investor and also as a shareholder. This increases the chances of receiving an allotment.
In addition to adhering to these tips, it is also important to think rationally and not jump into a bandwagon along with the rest of the retail investors. There have been many instances where heavily over-subscribed stocks were unable to deliver positive returns for its investors. On a similar note, it is important to not base IPO investment decisions solely on the level of subscriptions. For all one knows, a not so heavily over-subscribed stock could turn out to be a multibagger. It is crucial to look beyond prospective gains and deeply analyse the fundamentals of the issuing company and other factors on the industry and general economy level instead.
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