There are three important things that people who invest in Initial Public Offering (IPO) wait to know when such an event happens for a particular company; first, whether they have been allotted shares, second, the price at which the stocks would be listed and third, the amount of profit or losses they could get when the stocks are listed. However, being allotted IPO stocks does not imply getting any gains from the listing of such stocks. Also, listing a company at a premium price does not imply that the price of such stocks will continuously increase. Investors should first learn how IPO allocation is done, how the prices of listings are calculated and how to make listing gains.

What is IPO Allotment Status?

The IPO allotment status gives investors the information on whether they have been allotted shares after the end of the IPO subscription period. When there are applications to an IPO, the registrar of the IPO processes those applications and makes an allotment based on the regulations and demand in each investor category. When there is oversubscription in an IPO, then the number of shares allotted to investors will be less than what they had applied for. In some cases, investors do not get any allotment of shares. The allotment status usually shows the allotment of shares along with the number of shares allotted in case there was allotment. This information is available to investors once the allotment process has been completed.

How to Check IPO Allotment Status Online

The allotment status of investors for an IPO can be checked through the website of the IPO registrar.

Do the following:

• Go to the official website of the designated registrar for that particular IPO.
• Choose the company or IPO out of the list.
• Select the method of identity, whether PAN number, application number or DP ID and Client ID, as per the choice given.
• Enter all the necessary information and submit the application.
• Check the status of allotment, shown on the screen.

There are also various other ways by which one can verify the status of the allotment through services related to the IPOs of BSE and NSE. It is usually wise to start with the official website of the registrar in order to verify the allotment status. [Source: Information related to IPO bid verification at NSE] If the shares are not allotted, the amount that had been blocked is usually refunded.

IPO Listing Price Definition

The IPO listing price is the price at which the stock will be traded on the exchange following the IPO. It could either be lower or higher from the issue price at which investors were allowed to subscribe to the shares. For instance, let’s assume that a company issues its shares at an issue price of ₹200 per share. When it comes to listing, demand might be so high that the listing price is ₹250. This implies that the share is listed at a premium of ₹50 per share. Conversely, if the listing price is ₹180, then the shares have been listed at a discount of ₹20.

Determining the IPO Listing Price

Demand and supply, market sentiments, conditions, as well as expected performance of the company in the future, influence the listing price. At the time of listing, the exchange uses pre-open session in order to help with price discovery. During this process, buy and sell orders are collected and matched in order to find the price.

Some of the aspects that may play a role include:

– The subscription for the IPO: Subscriptions that are high may mean the interest of investors; however, they do not guarantee a premium listing.

– Financial health of the firm: The revenue, profitability, debts and other expectations by investors from the business may have an effect.

– Pricing of the IPO: The high pricing may cause caution among investors due to poor results of the company or listed firms.

– Market environment: Market conditions may influence the demand on listing day.

– Investor expectations: Expectations for future growth and the prospects in the industry may affect buying and selling.

The price of the listing represents the demand of the market at the moment of listing.

What Are Listing Gains of IPO?

Listing gain of IPO is the gain made from selling the stock at a price that is higher than the IPO issue price. In the case where the listing price is lower than the issue price, the investor will experience listing losses. Listing gains can be measured using the listing price and the issue price.

Formula for calculating listing gain of IPO:

Listing gain per share = Listing price – IPO issue price

Listing gain % = (Listing price – IPO issue price) / IPO issue price x 100

The above formula will give the price difference without considering the charges and taxes.

Example on how to calculate listing gain of IPO

Consider an investor who acquires 50 shares in an IPO with an issue price of ₹200. The total value invested is ₹10,000. The listing price is ₹250 per share.

There is an unrealized gain of ₹2,500 at the time of listing. If the investor sells 50 shares at the price of ₹250, the total gain would be ₹2,500. But if the shares are listed at ₹180, there would be a loss of ₹20 per share or ₹1,000 for 50 shares before any charges and taxes. It is through this example that it can be said that investors need to take into account the gains and losses from an IPO as opposed to the assumption that every IPO is profitable.

IPO Allotment Status vs Listing Price vs Listing Gains

These are related terms but represent different aspects of an IPO.

For instance, an investor may get an allotment but notice that the shares are listed below the issue price. Also, one investor may fail to get any shares during the IPO, hence cannot benefit from the listing performance using such application. Each step has its own information, which needs to be known separately.

What Should Investors Look at Before Listing Day?

The listing returns of IPO may draw short-term investors, but concentrating on the listing price may result in wrong decision making. These factors may help you decide whether you will sell or hold allotted shares after the listing.

1. The Company’s Business Model and Financial Position
Apart from IPO demand, you need to check other things about the company, including the business model, earnings, profitability, debt structure and growth potential. This information may inform you about the risk of holding such shares.

2. The IPO Valuation
The issue price and valuation of the IPO may be compared to the company’s earning, performance and other listed companies. Just because the IPO is in high demand, it does not mean that it is undervalued.

3. Do Not Rely on GMP Alone
Grey market premium (GMP) is an informal indicator used to gauge the sentiment of the market before the listing takes place. GMP does not represent the official price at which the stock will trade after the listing. GMP does not necessarily represent profits expected by investors from listing.

4. Take into Account the Purpose of Investing
Investors looking forward to listing gains in the short term might have differing purposes compared to investors interested in gaining in the long term.

5. Take into Account the Fees and Taxes
The difference between the price of issue and selling price gives the net profit or loss.

Common Mistakes to Be Avoided During IPO Allotment and Listing Gains

The following common mistakes must be avoided by investors:

• Thinking allotment is a certainty: Applying to purchase an IPO does not mean you will definitely get allotted the shares.
• Thinking that listing gains are certain: The listing may happen at a premium price, at par value or at a discounted price.
• Considering GMP as the listed price of the shares: GMP is unofficial and cannot necessarily be relied upon for listing gains.
• Visiting unofficial websites to check allotment: Visit the official registrar or the official stock exchange website.
• Neglecting the finances of the company: Do not rely on subscription numbers and listing-day hype instead of analyzing the finances of the company.
• Hasty decisions: Premium listing of the shares does not mean that it has been proven whether holding or selling of the shares is the way to go.

Make Smart Choices Beyond The Listing Day

Allotment, listing price and listing gain are three key considerations for investment in the IPOs. Verification of allotment helps investors check if they have been allotted any shares whereas knowledge about listing prices and listing gain formulas will assist them in analysing the performance on the day of listing. However, being allotted successfully or listing at a premium price doesn’t necessarily mean that the IPO is an ideal choice to invest in. Investors need to consider beyond listing day and take decisions according to their financial plans.

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Frequently Asked Questions (FAQs)

1. When can I check my IPO allotment status?
You can check your allotment status after the registrar finalises the allotment. Refer to the IPO’s announced schedule and the official registrar or exchange website for updates.

2. What happens if I do not receive an IPO allotment?
If no shares are allotted, the blocked application amount is generally released according to the applicable process. If the amount remains blocked beyond the expected timeline, contact your bank or broker for assistance.

3. Can an IPO list below its issue price?
Yes. If market demand is weak or investor sentiment changes, an IPO can list below its issue price, resulting in a potential listing loss for investors who received shares.

4. Are IPO listing gains guaranteed?
No. Listing gains are not guaranteed. The listing price depends on market demand, investor sentiment, valuation and other factors. Investors may experience losses if the shares list below the issue price.

5. Should I sell IPO shares immediately after listing?
The decision depends on your investment objective, risk tolerance and assessment of the company. Investors seeking short-term gains and those investing for long-term growth may follow different approaches. Consider the company’s fundamentals and valuation before deciding.