Zomato IPO mai paisa dala kya? Allotment mila kya? These were the buzzing words I was hearing from people around me few weeks back. There was a lot of hype round the Zomato IPO and people waited with bated breath for the allotment announcement as the Grey Market price was so promising, making it was clear that the stock would open at a higher price on the day of being listed.
But not many, especially the small retail investors could get an allotment of the much-hyped shares. Why, you ask? For that let’s first understand what is share allocation and how bidders get shares allocated.
Let’s understand this with an easy example. A company has put out an IPO for 5 lakh shares for investors to bid for allotment. You and your friend both applied for it, but you got no allocation while your friend managed to get it. So, what went wrong? Why didn’t you get it? To answer this, we need to know more about the allocation process.
A company launches an IPO for the investors and collects bids online. The next round is of elimination where bids with wrong spelling, incorrect account number or PAN details are removed. After this, the final count of successful applications is ready for allotment.
Now there are two scenarios here too.
- Undersubscribed IPO: The bid for the IPO was below or equal to the shares offered by the Company.
- Oversubscribed IPO: The bid received was above the shares offered by the Company.
In the 1st case, you get allocated all the shares that you applied for while in the 2nd case, the allocation happens based on computerized lucky draw to give fair opportunity to all the bidders. If luck favors you, and your name gets picked, the shares will be allocated to you.
In the case of an oversubscribed IPO like Zomato, it was all about luck for retail investors like you and I. If you got lucky, you got the shares.
So how do you increase your chances of share allocation in such a hyped IPO which you know is going to be oversubscribed.
- Apply with multiple Demat account linked to different PAN Cards: One of the rules for application in an IPO is that you can apply from one demat account under your name and PAN details. You cannot do multiple applications. Now the only way out is, if you have a bigger family. Be it your mom, dad, sister, brother or spouse, apply from each family members demat account. This way, the chances of shares being allocated increases, then be it anyone who gets the allocation, shares are coming home and that’s all matters.
- Apply for minimum lot size at a cut off price: Now you ask what this means. We know IPOs are issued in a lot size. So, there can be 9 shares in a lot or even 195 shares in a lot as was the case with Zomato. In the application, agree to buy at a cut off price. This means you are willing to buy at the price the company decides. If you quote less, you lose so better agree to what they decide.
- Buy shares of Parent Company: If the company that is applying for an IPO has a parent company which is listed, buy shares of those company in your demat account. This makes you eligible under the shareholders category and increases your chances of allotment.
Zomato had a stellar performance on its debut day at the Stock Exchange, opening at Rs. 116, 53% over the IPO issue price of Rs. 76. Being oversubscribed by 38 times, Zomato IPO was a hotcake and the lucky ones who go the allocation had a blast and many booked their profits on the first day itself. Currently the stock is trading at around Rs. 130, so people who continued to hold are minting money.
Now that we know how to increase our chance of getting share allocation, pull up your socks and be ready. Many interesting IPOs are in pipeline in 2021 and NYKAA, which has already been gaining a lot of attention, has filed its Red Herring Prospectus (offer document for issuing an IPO filed by the company to SEBI) and once it gets the green signal, will the dates be known. Paytm, OLA and Oyo Hotels are some other IPOs to keep an eye on which are expected to come out later in 2021.
I hope you found this blog informative and helpful, and I welcome any comments, suggestion and topics that you have for me, and I would more than oblige to write about that in a comprehensible language for my readers.
This blog is a part of Blogchatter’s #Blogchatterhalfmarathon
Disclaimer: Investment in stock markets has its own sets of risks so do your own research before investing. My blogs only aim at making investments and finance more digestible for my readers and add to their knowledge.