Applying for an IPO? One lot is a lot!

The IPO (Initial Public Offer) market in India is heating up nowadays.

With almost every IPO getting highly oversubscribed, getting an allotment has become tricky. We have seen a peculiar trend—investors tend to make an application with the maximum lot size, thinking that the more they apply, the higher will be their chance.

But that, unfortunately, may not be an intelligent decision when you are applying in the retail category.

Quite some time ago, SEBI has amended the basis of allotment under the retail category of investors. It has done away with any advantage associated with applying for a higher number of shares. Now, whether an applicant applies for the minimum lot size or the maximum lot size, they are all treated AT PAR in step 1; only after that exercise is completed, additional shares are made available to those who have applied for more.

 Looks complicated right.

Let’s take an example of one such IPO that received an overwhelming response—Rossari Biotech.

Rossari Biotech: IPO stats

(Source: NSE)

The minimum lot size for the IPO of Rossari Biotech was 35 shares. For the time being, if you consider only the retail quota, the minimum applications required by the company to ensure full allotment in the retail category was 1,16,765 (Shares offered divided by the minimum lot size i.e. 40,86,765/35). What this means is that if all applicants applied for 35 shares, the company would require 1,16,765 investors and the full retail quota would be subscribed. The company received more than 6 lac investor applications. As a result, the funds of all those who applied for more than the minimum lot size of 35 shares were blocked unnecessarily. 

In other words, all the shares in the retail category were exhausted hence it was not wise to apply for more than the minimum lot. This is what has been missed out by many investors.

But not every issue gets such an overwhelming response. Take, for instance, Yes Bank’s Follow-on Public Offer (FPO) to raise Rs 15,000 crore by offering 909.9 crore shares in the price band of Rs 12-13. The minimum lot size was 1,000 shares and the retail quota was 35%. In other words, the bank offered 431.7 crore shares to retail investors. At the upper end of the price band, i.e., at Rs 13, it anticipated 33.2 crore applications. There were 5,59,950 application for 175.4 crore shares. Hence investors who applied for more shares would have got additional shares, beyond the minimum, which all investors received.  

Specifically, when a spate of issues are in the pipeline, as at present, it would be prudent for investors with limited resources at their disposal to apply for the minimum lot size.

Good news…

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You may also like to read: IPO watch: story vs valuation what matters the most to you?

 

Disclaimer:

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

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