Here is how you can maximise your chances of getting share allotment in an IPO.
But before that, do consider the fundamental and valuation aspects of the issue before you make up your mind to bid for the IPO.
The first and the foremost step, is to fill in the IPO form correctly.
There have been instances of IPO applications getting rejected over technical issues. For instance, in the case of one of the Technology IPO, the offer received 785,165 applications for 375,059,792 equity shares prior to technical rejections.
Retail individual bidders bade for 11.35 times the quota limit of 1,599,565 shares for the investor category. But after withdrawals and technical rejections, this category was deemed subscribed only 11.122 times.
The second important factor to consider is the bid price.
If the price band for an IPO is Rs 90-100 and an investor bids at Rs 95 and the actual pricing comes in at Rs 98, then s/he will not be eligible for any share allotment.
So, if an issue is expected to receive overwhelming response and valuations look reasonable, one can bid at the upper limit of the price band, or ceiling price. If the price band is Rs 100-110 and there is a lot of positive buzz around the issue, one can bid at Rs 110 a share if valuations look decent.
Some analysts say a better way can be to apply at a cut-off price. Unlike a price bid where a specific price is indicated, if the price indicated by an applicant is lower than the price discovered, cut-off bids always remain valid for the purpose of allotment.
Only retail investors can apply at this price. Investors are required to tick the cut-off option, which indicates their willingness to subscribe to shares at any price discovered within the price band.
The third important thing is to consider the number of bids.
A retail investor can bid for shares worth a maximum of Rs 2,00,000 in an IPO. But this has to be in minimum bid lots.
Suppose the minimum bid lot is 16 shares based on the IPO price band. This means one has to apply for a minimum of 16 shares (one minimum bid lot), and in multiples thereafter.
In the case of an IPO getting oversubscribed, the chances of an investor getting share allotment rises if multiple bids are made by different members of the same family than one bid seeking up to Rs 2 lakh worth of shares.
This is because, in any case, a retail investor cannot be allotted shares less than 1 minimum bid lot size.
So, if the issue is subscribed multiple times at the upper limit of the price band (say at Rs 860 in the Rs 850-860 price band), there will be a draw of lots, with lucky investors getting a minimum of one bid lot.
Hence, if a family of five have applied for the same IPO at that price or at cut-off price in smaller bid lots (5 applications), chances for them getting shares in the draw are better than that for one application.