The IPO market is trending. Everyone’s talking about the next potential unicorn, and the excitement is contagious. But, with so many investors vying for the same shares, how do you stand out from the crowd?
Landing an allocation in a great, oversubscribed IPO can feel like winning the lottery, but it doesn’t have to be entirely a game of chance. This blog is your playbook for conquering oversubscribed IPOs. We’ll show you the smart strategies to increase your chances of getting an allocation and making the most of this exciting investment opportunity. Uncover everything from understanding the allotment process and crafting a compelling application to exploring alternative investment routes and managing your expectations.
Get ready to level up your IPO buying game and increase your odds of participating in the next big thing.
Why do some IPOs experience high demand?
Initial Public Offerings (IPOs) can create significant interest and demand in the market, often leading to a frenzy of buying activity. Several factors contribute to the high demand for certain IPOs:
- Strong company fundamentals: A business with a solid financial track record attracts investors. Companies with consistent revenue growth, profitability, and market leadership often see strong demand. Investors prefer businesses with a history of innovation and future expansion plans, making their IPOs more appealing.
- Market sentiment: If the stock market is bullish, IPOs see higher participation. Positive investor sentiment leads to greater risk appetite, driving demand for new listings. A strong economic environment and favourable policies further encourage investors to participate in IPOs.
- Grey Market Premium (GMP): A higher GMP suggests strong interest in the IPO even before listing. GMP reflects the premium investors are willing to pay in the unofficial market, indicating expectations for a profitable listing. While GMP is a helpful indicator, investors should also evaluate a company’s fundamentals before making decisions.
- Limited supply: Demand skyrockets when the number of shares available is less than the number of applicants. Lower share availability increases competition, leading to oversubscription. Companies offering less equity to the public often create artificial scarcity, enhancing demand.
Understanding these factors helps you decide whether an IPO is worth applying for and how to improve your chances of securing an allotment.
Steps to buy an IPO in a high demand market
Do your research before applying
Not every IPO guarantees success. Before making an investment decision, it is crucial to analyse the company’s financials, management, and industry potential. For in-depth insights, check the company’s draft red herring prospectus (DRHP) on SEBI’s website.
Apply through multiple Demat accounts
SEBI regulations allow multiple IPO applications under different names (family members with separate Demat accounts). This increases the probability of allotment in oversubscribed IPOs.
Use ASBA for seamless application
Application Supported by Blocked Amount (ASBA) ensures that your funds remain in your account until shares are allotted. It’s the safest and most efficient way to apply for IPOs through your bank or trading website.
Opt for the retail investor category
Retail investors have a dedicated quota in most IPOs. Ensure you apply in this category, as institutional investors face tougher competition.
Apply for the minimum lot size
Many investors mistakenly apply for large lots, assuming higher chances of allotment. However, IPO allotment is done through a lottery system, and applying for a single lot often improves your chances.
Track institutional investor interest
Qualified Institutional Buyers (QIBs) play a vital role in IPO success. A strong subscription by QIBs usually signals positive long-term growth.
What to do after applying for an IPO?
- Check your allotment status: You can check your status via stock exchanges or your trading website. If you don’t get allotted, the blocked amount will be released back to your bank.
- Plan your listing day strategy: Based on market conditions, decide in advance whether to sell for quick gains or hold for long-term growth.
- Monitor market trends: IPOs can experience volatility on listing day. If prices surge, consider booking partial profits while holding the rest.
Common mistakes to avoid
When considering investments in initial public offerings (IPOs), it’s essential to approach with caution and diligence to maximise potential gains while minimising risks.
- Informed decisions, not blind faith: Always research an IPO beyond media buzz before applying. Consider consulting with financial advisors or examining historical performance to make informed choices.
- Over-leveraging funds: Avoid borrowing money for IPO investments, as markets can be unpredictable. It’s essential to invest only the amount of money that you can afford to lose in order to ensure your financial stability.
- Ignoring risk factors: Every IPO comes with risks. Be sure to assess industry trends and potential downsides before making a decision. Diving deep into the company’s fundamentals and market position can uncover hidden risks that may affect your investment.
Conclusion
Buying an IPO during high demand offerings requires smart decision-making, research, and strategic application. You can improve your chances of securing shares by leveraging multiple Demat accounts, using ASBA, and applying for the minimum lot size. Additionally, a reliable trading website can streamline the application process and help you stay updated.
Do not miss out on the subsequent big IPO. Ventura’s online stock trading and investment platform provides you the edge with comprehensive research and a streamlined application process. You can start exploring opportunities today!
