Primary markets have been hyper-active over the last year & the pace has only picked up over the last couple of months. There has been 30 IPOs since last Diwali garnering over Rs.45,000 cr of which Rs.14,000 cr was raised in October 2017 & we have another ~Rs.20,000 cr worth IPO lined up in the first 10 days of November. Six stocks Avenue Supermarts, Shankara Building Products, Salasar Techno Engineering, CDSL, Apex Frozen Foods and Sheela Foam delivered multi bagger returns.
IPO investment is a good source of earning to the retail investor if selected properly. One check everyone can do is to look up the grey market premium on offer in the IPO. This information is readily available online. But even after due consideration of fundamentals and valuation of any IPO and subsequent subscribing, it is not necessary that one get share allotment. Thus, merely subscribing to any public issue does not guarantee for share allotment especially when the IPO is over-subscribed multiple times. To enhance the possibility of share allotment one should keep in mind the following things.
The chances of rejection are high in case if the applications are incomplete or filled with some error. So it is always better to fill the application form with due care. The application must be complete in every sense and no column is to be left blank. Since January 2016, SEBI has made ASBA (Application Supported by Blocked Amount) mandatory for subscribing any IPO. Under this method, the money is blocked in the account linked to the application & the amount is withdrawn only in case of allotment. One simple process I follow to negate mistakes is to fill up the online ASBA form available on the BSE website. If you are careful filling up the form for the first time, on all subsequent occasions the data such as bank account number & DP a/c details can be recovered & updated thus chances of making a mistake are minimal.
Retail investors can tick the cut-off option which indicates their willingness to subscribe to shares at any price discovered within the price band. The cutoff price is at upper band in case the IPO is over subscribed.
Most importantly SEBI allows maximum 5 applications to any IPO from a single bank account to a retail investor. Also, a retail investor can bid for shares worth a maximum of Rs.2 lakhs in any IPO. It is always advisable to subscribe in minimum lot size but the number of application should be on higher side. Thus you can bid one lot each in the name of every family member in their DP account instead of bidding multiple lots in your name. This increases the chances of getting a higher allotment. There is the draw of lots for allotment to retail investors in case any issue is subscribed multiple times. And the lucky investors get a bid of minimum one lot.
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’