Cracking the IPO code: Tips for securing allocations amidst strong overdemand

While strategies such as using multiple permanent account numbers (PAN) or shareholder quotas might slightly improve the chances of allotment, the odds remain slim. Bajaj Housing’s recent IPO, for example, saw prices double, but few managed to snap up the shares.

So much so that X (formerly Twitter) was flooded with memes highlighting the struggle to secure an allocation. Bloomberg data showed the IPO was oversubscribed by more than 60 times.

However, understanding how allocations work and avoiding common mistakes is key for those looking to increase their odds and avoid rejections in today’s crowded IPO space.

Applying using multiple PANs

To increase your chances, a popular strategy is to apply through multiple PAN-linked demat accounts. Instead of applying for the entire amount through a single account, splitting it across multiple accounts gives you more “lottery tickets.” Just make sure each account is linked to a unique PAN, as multiple applications under the same PAN will be rejected.

Example: Let’s say you have ₹60,000 and planning to apply for Bajaj Housing IPO, here are two options:

Option 1: Request ₹.60,000 from a single demat account.

Option 2: Split the ₹60,000 in four accounts (minimum lot size is ₹14.980).

Option 2 would have been better as applying through multiple PAN-linked demat accounts could increase your chances of getting allotment. Some investors even use the demat accounts of family members or friends for this purpose.

However, as per Securities and Exchange Board of India (Sebi) rules, one cannot apply through multiple demat accounts linked to the same PAN. If you do so, your application will be rejected.

Furthermore, even if the public offering is in high demand, each successful applicant receives only one lot. Submitting four separate applications improves your chances compared to just one.

Increasing opportunities with shareholder quotas

Another option is a shareholder quota. If you own shares in the IPO’s parent company, you may be eligible for a reserved allocation.

For instance, Bajaj Housing’s IPO had reserved 7.62% for Bajaj Finserv and Bajaj Finance shareholders. Similarly, electric vehicle startup Ather, which is gearing up for its IPO, has reserved a portion for Hero Motocorp (one of its key promoters) shareholders following the successful listing of its largest peer in the EV sector, Ola Electric.

Now, here is a success story that highlights the effectiveness of this strategy: Aadesh Jain, a 30-year-old freelancer from Chennai, leveraged it by buying Bajaj Finserv shares in 14 demat accounts of friends and family.

This decision allowed him to apply for the shareholder quota and he managed to receive allocations for 11 of the 14 applications. It should be noted that although Jain made a smart decision, he was definitely lucky. (See infographic)

“To ensure that you are eligible for the shareholder quota, you will need to own a Hero Motocorp share on the day Ather files its prospectus. When will that be? We cannot know for sure. But if you hold a Hero Motocorp share in your account, you will be eligible when the prospectus is eventually filed,” said Mohit Mehra, vice president, primary markets and payments, Zerodha.

The maximum amount that can be requested in the shareholder category is ₹2 lakh even if you apply from another category. Interestingly, the IPO of Life Insurance Corp. of India (LIC) also included a quota for policyholders.

Large Non-Institutional Investors (NII) Category

As the saying goes: “Often what you see is not what is happening and what is happening is what you don’t see.” (Often, what is seen is not reality, and what is real is not visible)”. This rings true for IPO investors evaluating Bajaj Housing’s IPO in the large HNI category.

This category (applications of more than ₹10 lakh) was oversubscribed 50 times, while the small HNI category ( ₹2-10 lakh) was subscribed 32 times. Even though the smaller subscription figures in the small HNI category suggest better prospects, the reality is more complex.

The exchange reports oversupply based on value, not the number of applicants. Since allocations are determined based on the number of applicants and not the total amount applied for, the perceived advantage in the small HNI category can be misleading.

Example: If an IPO reserves ₹10 crores for Big-HNI category and ₹5 crore for small HNI category and 30 investors apply ₹1 crore each, the Big-HNI category would show a total demand of ₹30 crores, which is 3x oversubscribed (30/10).

However, in the small HNI category, 100 investors applying ₹10 lakh each would create a total demand of ₹ē10 crore, resulting in an oversubscription of 2x (10/5).

This may mislead investors into thinking that the small HNI category is more favourable, but since allotments are based on the number of applicants, not the amount applied, large HNI investors have a one in 30 chance of getting an allotment, while small HNI investors have only a one in 100 chance.

Therefore, showing the number of applicants would provide a clearer picture. In Bajaj Housing’s IPO, for example, three investors applied ₹50 crore each in the Big HNI category, which significantly skews the reported subscription figures.

However, once the number of applications is exceeded, the allocation process becomes a lottery, with all applicants treated equally. Despite their numerous applications, these three investors did not receive a single lot.

Since the exchange does not disclose the number of applicants, many retail investors mistakenly believed that large HNWI firms had a worse chance than smaller ones. In reality, the probability of receiving an allocation was 3.6% in the small HNWI category and 12% in the large HNWI category.

“When evaluating IPO subscription figures, it is more important to look at the total number of valid applications than just the oversubscription value,” Mehra said. “Large applications can inflate oversubscription figures, making them appear higher to individual investors.”

“During a live IPO, the exchange displays value-based data, but after the IPO closes, one can check the allotment basis published by the registrar. In Bajaj Housing Finance’s IPO, for example, the Big HNI category showed an oversubscription of 50 times in value.”

“However, the actual probability of award based on valid applications was around 12%. This means that the oversupply was approximately 8 times based on the number of applicants who could receive a single lot,” he added.

Bigger deals and higher success rates for SMEs

Unlike parent company IPOs, where allocations are determined by lottery, SME IPOs generally use a pro rata basis for allocations, except in the case of single-lot retail applications.

For example, in the recent IPO of Trafiksol ITS Technologies, the NII category (applications of more than ₹1.4 lakh) was oversubscribed 699 times. This means that for every 699 lots requested, one lot was guaranteed.

Hygiene control

Many investor applications are rejected due to common mistakes. A key mistake is submitting multiple applications from a single PAN-linked demat account. Also, the name on the demat account must match the name on the bank account used for the application. Submitting applications using a family member’s account or UPI ID is not allowed.

Mehra advises investors to avoid cancelling their orders and instead wait for the mandate to arrive. Investors can accept the mandate anytime between 10:00 am on the first day of the IPO and 5:00 pm on the last day. There may be delays in receiving the mandate due to the involvement of multiple entities in the IPO process.