Initial Public Offering (IPO) is a process by which a privately held company gets listed on the stock exchange and sells its shares to investors. There are several categories of investors in IPO application process. You can apply through more than one category to maximize the chances of allotment based on the eligibility criteria.
RETAIL INDIVIDUAL INVESTORS
- This category includes Resident Indian Individuals, Non-resident Indians (NRIs) and Hindu Undivided Families (HUFs)
- The minimum allocation under the retail quota is 35%.
- SEBI has decreed that if the issue is oversubscribed, subject to availability, all retail investors be allotted at least one lot of shares. A lottery system is used to allocate IPO shares to the public when one lot cannot be allocated to each investor.
NON INSTITUIONAL INVESTORS (includes HNI)
Institutional Bidders (NII) category includes IPO application by High Net-worth Individual (HNI) investors. Other than HNI investors, the NII reserved portion also includes:
- FPIs, and
NIIs are further divided into two categories:
- s-NII: NII investors who bid for shares between Rs. 2 lakhs and Rs. 10 lakhs are considered as Small NII category. The 1/3rd of NII category shares are taken for this sub-category. This subcategory is also called Small HNI (s-HNI).
- b-NII: NII investors who bid for shares worth more than Rs 10 Lakhs are considered as Big NII category. The 2/3rd of NII category shares are taken for this sub-category. This subcategory is also called Big HNI (b-HNI).
HIGH NETWORTH INDIVIDUALS(HNI)
Non-Individual Investors, also known as HNIs are high-value applications and therefore are treated differently from retail applications.
- HNI category allows investors to apply for more than Rs 2 lakh in an IPO.
- HNI applications cannot be cancelled.
- Modification of bids can be increased but cannot be reduced.
- HNI investors can’t apply at the cut-off price. The applicants have to mention the exact price they are willing to pay for the IPO.
QUALIFIED INSTITUTIONAL BIDDERS (QIBs):
- Commercial banks, public financial institutions, mutual fund houses and Foreign Portfolio Investors that are registered with SEBI fall in this category.
- 50% of the total offer price is reserved for Qualified Institutional Bidders.
- Investors from this category cannot bid at the cut-off price.
- QIB’s are prohibited by SEBI guidelines to withdraw their bids after the close of the IPOs.
Underwriters try to sell large sums of IPO shares to qualified investors/bankers at a thriving price before the start of the listing of IPO. To meet the targeted capital of any company, underwriters sell a huge amount of shares to QIBs. SEBI mandates that institutional investors shall sign a lock–up agreement for at least 90 days to guarantee minimal volatility during the IPO process. QIBs are particularly significant for a company launching an IPO. That’s because IPO shares are offered by the underwriters to the QIBs before the price discovery in the share market takes place. There would be lesser number of shares available to the general public if QIBs buy more shares. This would result in increased share prices. This scenario is great for a company because they want to raise as much as capital as possible.
However, SEBI has laid down rules to ensure that companies do not manipulate the IPO valuations. Because of this, SEBI doesn’t allow the companies to allocate more than 50% shares to Qualified Institutional Bidders (QIBs).
This is a part of QIB making an application of more than Rs.10 crores in a book building issue. This category includes
- Resident Indian Individuals, non-resident Indians (NRIs), HUFs, companies, trusts, science institutions, corporate bodies and societies.
- Investors under this category cannot bid at the cut-off price.
- Maximum 60% of the QIB category can be allocated to the Anchor Investors.
- Anchor Investor Offer Price is decided separately.
- No merchant banker, promoter or their relatives can apply for shares under the anchor investor category.
POINTS TO BE REMEMBERED:
- UPI transaction limit for the payment of IPO has been increased from Rs.2 Lakhs to Rs.5 Lakhs for the investors with effect from 1st May, 2021.
- There is a time limitation for bidding. Applications are allowed till 3:45 PM IST only. Bids placed after 3:45 PM on Day 1 and Day 2 will be pushed as AMO orders. On Day 3, bids placed after 3:45 PM will be rejected by the exchange automatically but it can vary depending upon the policies of the bank.
- IPO allotment is done on a lottery or proportionate basis depending on the status of oversubscription in the segment.
|ELIGIBILITY||Resident Indian individuals and NRIs applying for shares not exceed Rs 2 Lakh in value.||Resident Indian individuals and NRIs applying for shares exceed Rs 2 Lakh in value.||Commercial banks, public financial institutions, mutual fund houses and Foreign Portfolio Investors that are registered with SEBI (More than Rs. 2 Lakhs)|
|SHARES AVAILABLE||35% of the Offer||15% of the Offer.||50% of the Offer.|
|BASIS OF ALLOTMENT||Lottery||Proportionate||Proportionate|
|CUT-OFF PRICE||Can invest at the cut-off price.||Cannot invest at the cut-off price.||Cannot invest at the cut-off price|
|BIDS||Retail investors are allowed to withdraw or lower the bids||Cannot withdraw or lower the bids.||Cannot withdraw or lower the bids.|