Winning the IPO Game: 5 Proven Strategies to Secure Your Allotment

Did you ever dream of striking gold in the stock market through an IPO? Don’t be reluctant if you say “Yes”. You are not alone. Remember the Zomato IPO from 2021, when the retail portion was oversubscribed by 2.69 times. This means that for every 100 shares available, 269 applications were received. Huge, right?

Getting in early on a promising IPO can feel like winning the lottery. It’s about much more than luck; strategy is the key.

Here are five tried-and-true strategies for increasing your chances of receiving that coveted IPO allotment. Ready to play and win?

Understanding the IPO Process

Getting in on the ground floor of a promising initial public offering is like catching a rising star. However, to succeed in the IPO game, you must first understand the process.

Remember, when a company goes public through an Initial Public Offering (IPO), it is offering shares to the public for the first time. This is how they raise capital for a variety of purposes viz. Business diversification, discharging market liabilities, or for other general corporate purposes.

Step 1: Appointing Lead Managers and Advisors

Companies select lead managers (underwriters) and legal advisors to guide them through the IPO process. These experts help with documentation and regulatory compliance.

Step 2: Drafting and Filing the Draft Red Herring Prospectus (DRHP)

The company, with its advisors, drafts the DRHP, detailing the business model, financials, and the purpose of the IPO. This document is then submitted to SEBI for approval.

Step 3: SEBI Review and Approval

SEBI reviews the DRHP to ensure all regulatory requirements are met. SEBI might request clarifications or additional information. Once their queries are resolved, they issue an observation letter.

Step 4: Marketing and Roadshows

The company conducts roadshows to generate interest among potential investors. This involves presentations and Q&A sessions, showcasing the company’s growth potential.

Step 5: Pricing the IPO

Based on investor feedback and market conditions, the company, along with its lead managers, sets the IPO price or price band.

Step 6: Book Building Process

Investors bid for shares within the price band during the book-building period. This process establishes the final share allotment price.

Step 7: Allocation of Shares

Investors receive shares according to their submitted bids. Retail investors, qualified institutional buyers (QIBs), and non-institutional investors (NIIs) all get their respective portions.

Step 8: Listing on the Stock Exchange

Once shares are allocated, the company lists its shares on stock exchanges like BSE and NSE. Shares start trading publicly, and the IPO process culminates with the listing day.

Researching the Right IPOs

To ensure success in IPO allotment, you cannot afford to pick any random company just by being driven by its publicity or marketing gimmicks. You have to do highly skilled and strategic research.

Now, let’s quickly scan through the process of finding the right IPO-

1. Know the Company Inside Out:

Dig into its business model, revenue streams, and growth potential. Also, its key promoters, and the management of the company.

• Read the DRHP (Draft Red Herring Prospectus) Like a Detective:

Look beyond the surface. Analyze financial statements, and check their fundamental and technical parameters, risk factors, and plans.

• Market Trends and Industry Analysis:

Is the industry booming or busting? Align your picks with sectors on the rise. An emerging industry can boost a company’s IPO potential.

• Peer Comparison: Compare the IPO company with its peers on the aspects of their valuation, Price-to-earning (P/E), Price-to-Sale (P/S), EBITDA, etc. Analyse how their financials stack up.

• Investor Sentiment: Gauge the buzz around the IPO. Strong investor interest can drive demand, but don’t fall for hype alone—back it up with solid data.

Meaningful research is vital to winning the IPO game.

5 Proven Strategies You Can Use To Maximize Your Chances of IPO Allotment

Leverage Your Demat Account

Maintain an active Demat account with a reputable brokerage. High-volume transactions and a long-standing relationship can improve your chances. Brokerage firms may prioritize loyal customers.

2. Spread Out Your Bids

Instead of placing a single bid for a large number of shares, submit multiple applications using different Demat accounts, maybe be of your close relatives. Particularly in the case of oversubscribed IPOs, scattered investments always obtain higher chances of allotment. This can increase your chances of getting at least one allotment, especially if demand is high.

3. Opt for Full Payment Bids

When given a choice, opt for a full payment bid rather than part payment. This shows serious intent and can sometimes be favoured during allotment, making it less likely your bid will be overlooked.

4. Target Undersubscribed IPOs

Keep an eye on less popular or undersubscribed IPOs. These might have lower demand, increasing your chances of securing shares. But, don’t forget to check the fundamentals of the company before investing.

5. Apply as a Retail Investor

Confine your application amount to the retail investor limit of Rs. 2,00,000. Retail investors often have a reserved portion of shares in many IPOs.

Applying within this quota can be beneficial, especially for smaller investors, as the competition may be less intense compared to institutional bids.

The Key Takeaways

You will be amazed to know that in FY 24, retail investor participation skyrocketed, pushing IPO retail oversubscription to an impressive 30 times—far beyond FY23’s 7 times and FY22’s 14 times.

So, cracking the IPO code requires more strategic thinking and planning than chance or luck. To increase your chances of IPO allotment, use your Demat account, spread bids, opt for full payments, target undersubscribed IPOs, and leverage the retail investor advantage.

To make informed decisions, conduct thorough research on the company’s fundamentals and market trends. Developing strong broker relationships and staying informed keeps you one step ahead.

Following these suggestions will transform you from a mere participant in the IPO game to a winner. Ready to take on the IPO landscape? Go forth and secure your allotments!

FAQs

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.