How to Increase Chances of IPO Allotment

Initial Public Offerings (IPOs) provide suitable investment opportunities but the allotment process can be random, making it difficult to obtain the subscribed shares. To enhance the likelihood of receiving shares, investors should adopt specific strategies. They can follow some strategies to ensure they receive the maximum possible shares they subscribe to.  One can apply for multiple lots, use multiple Demat accounts, apply with the maximum bid amount, or use the cut-off price option. Read on to learn more about how to increase the chances of IPO allotment​ and some useful IPO allotment tips and strategies in detail. 

What is the IPO Allotment Process?

IPO allotment is the process where newly issued shares are allocated to investors who applied for them during IPO. The allotment process begins, after the IPO subscription period, typically conducted by a registrar. The registrar verifies the applications, ensures regulatory compliance, and allocates shares. The IPO allotment process aims to distribute shares fairly. It involves criteria like application size, the category applied for, and even a lottery system if demand exceeds supply. After allocation, the registrar informs applicants via allotment letters or emails, detailing how many shares they have been allotted.  

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Strategies to Increase IPO Allotment Chances​

The following are some tips for IPO allotment​ that may increase the chances.  

• Apply for Multiple Lots: Many IPOs allow investors to apply for multiple lots. Applying for more lots increases your chances of getting allotted at least one lot.
• Invest through Multiple Demat Accounts: If you have access to multiple Demat accounts, you can apply through different accounts. Each application is considered separately, increasing your chances.
• Check Retail vs Non-Retail Quotas: IPOs often have separate quotas for retail and non-retail investors. Retail investors typically have a higher chance of allotment compared to non-retail (institutional) investors.
• Monitor Subscription Levels: IPOs are oversubscribed often. Monitoring the subscription levels can give you an idea of the demand. Higher oversubscription may mean lower chances of allotment per application.
• Invest in Popular IPOs: Popular IPOs tend to be oversubscribed quickly. While this means higher competition, it also increases the likelihood that the IPO will be allotted.
• Use the Cut-off Price Option: Some IPOs offer a cut-off price option where you bid without specifying a price. This can potentially increase your chances as the price is determined later.
• Apply with Maximum Bid Amount: Some IPOs have a limit on the number of shares you can bid for. Applying with the maximum allowable bid can improve your chances.
• Apply Online: Apply directly through your broker's online platform. Online applications are processed faster and are less prone to errors compared to physical applications.
• Follow SEBI Guidelines: Ensure you follow all guidelines set by the Securities and Exchange Board of India (SEBI) and the IPO issuer to avoid any rejection.
• Consider Grey Market Premium (GMP): The IPO Grey Market often provides an unofficial indication of the premium at which IPO shares are trading. A higher GMP suggests strong demand. However, remain cautious, as it's not always accurate.

Remember, while these IPO allotment tips strategies can improve your chances, IPO allotment depends on the randomization process. Hence, it is essential to invest wisely and not solely rely on IPO allotment as a primary investment strategy.

Here is the list of IPOs that you might be interested

How to Calculate the Probability of an IPO Allotment?

To calculate the probability of an IPO allotment, divide the number of lots you applied for by the total number applied for across all applicants. Let us consider an example to illustrate how the probability of IPO allotment might be estimated. Here are the IPO details. 

1. Total Shares: A company is offering 1,00,000 shares in an IPO.
2. Number of Applicants: There are 10,000 applicants.
3. Lot Size: Each lot consists of 10 shares.
4. Retail Quota: 50% of the shares are reserved for retail investors.

Using the above data, follow the steps to find the probability of IPO allotment which may help you understand how to increase the chances of IPO allotment. 

• Calculate Total Demand: If 10,000 applicants apply for shares, and each wants on average 2 lots (20 shares), the total valuation is 10,000 * 20 = 2, 00,000 shares.
• Determine Retail Quota: Assuming 50% of the offered shares (50,000  shares) are reserved for retail investors.
• Calculate Oversubscription Ratio: Divide the total demand by the retail quota to get the oversubscription ratio.
  Oversubscription Ratio = Total Demand / Retail Quota = 2, 00,000 / 50,000 = 4. This means the IPO is oversubscribed by 4 times.
• Probability Calculation: To estimate the probability of getting allotted shares, divide the retail quota by the number of applicants:
  Probability = Retail Quota / Number of Applicants = 50,000 / 10,000 = 0.5 or 50%

Therefore, in this scenario, each applicant has a 50% chance of receiving at least one lot of shares.

The above examples provide a simplified calculation, actual IPO allotment probabilities can vary significantly based on market conditions, investor demand, and the specific rules of IPO issuance. 

Conclusion 
Certain IPO allotment rules and randomization procedures lead to less control over obtaining an IPO allocation, especially in the case of oversubscribed IPOs. Hence, investors should learn how to increase the chances of IPO allotment​. Certain strategies may help with allotment. You can apply for multiple lots using separate Demat accounts or use the cut-off price option. Applying through a well-known online trading app that provides real-time IPO information is also advantageous. Remember to remain up to date on subscription levels, apply early, and follow SEBI standards.