Mumbai, Dec. 7: Retail investors subscribing to high profile initial public offerings (IPOs) ought not to apply for more than the minimum number of shares.
Analysts say that the retail share allotment rules — approved by the Securities and Exchange Board of India (Sebi) earlier this year — are loaded against those who want to bid for a greater number of shares in the hope that they may get at least a few.
In August, the market regulator had set a Rs 10,000-15,000 band as the minimum application size for all investors while announcing modifications in the share allotment practices after an IPO.
Sebi had ruled that every retail applicant, irrespective of his application size, should be allotted a minimum bid lot, subject to the availability of shares in aggregate. The market regulator made this change to improve retail sector participation.
In cases where there is over-subscription, a lottery system will be followed. Market experts say that while lucky retail investors will get their minimum allotment, there is also the possibility that an investor who has applied for more number of shares may not get any.
As there could be strong investor response to a couple of forthcoming IPOs, experts feel a retail investor may be better off not bidding for more than the minimum lot of shares.
CARE off to a slow start
The IPO of Credit Analysis and Research Ltd (CARE Ratings) opened today and, in line with the trend witnessed with recent issuers, it got off to a slow start. Data from the stock exchanges showed that as against the total issue size of over 71.99 lakh shares, the offer received bids for over 6.15 lakh shares.
Interestingly, there was a good response from the retail investing community with these investors bidding for 2.51 lakh shares as against nearly 25.20 lakh shares reserved for this category.
Experts believe that the flotation will get a good response from all categories of investors, and the issue is likely to be over-subscribed.
The minimum application size for the issue is 20 shares, and it comes in the price band of Rs 700-750 per share.
With the issue likely to be over-subscribed, capital market experts like Arun Kejriwal of KRIS feel that retail investors should not apply for more than the minimum lot of 20 shares in this category.
CARE is the second largest rating company in India in terms of rating turnover. Various brokerages have asked their clients to subscribe to the issue.
“Considering all aspects, we believe the IPO is reasonably priced at the upper band. Hence, we recommend subscribing to the issue,” Angel Broking said.