IPO Investors

Embarking on an Initial Public Offering (IPO) journey involves diverse investors seeking profits. Purchasing IPO shares varies significantly from the regular stock market process. Share allocation occurs within 7 days post-IPO closure.

1. Retail Individual Investors (RII):

• Indian residents, NRIs, and HUFs investing under Rs. 2 lakhs fall under RII.
• Allowed to bid at cut-off price with withdrawal option during the open issue.

Retail Reservation Rules in IPO:

Allotment Basis for Retail Category:

• Full allocation if not oversubscribed.
• In case of oversubscription, allocation via lottery; each applicant gets at least one lot.

IPO Retail Investor Limit:

•  Maximum investment of Rs. 2 lakhs; NII category for amounts exceeding Rs. 2 lakhs.

Retail Investor Lock-in Period:

•  No lock-in period; IPO shares tradable upon listing.

Tips for Retail Investors in an IPO:

• Apply at the cut-off price in the retail category.
• In oversubscribed cases, apply for 1 lot per IPO application.
• Enhance allocation chances by applying through multiple family accounts.

2.Non-Institutional Investors (NII)

NII Overview:

• NII caters to Indian individuals, NRIs, HUFs, companies, academic institutions, and trusts.
• Bids in NII require a minimum of Rs 2 lakhs; no SEBI registration needed, unlike QIBs.

Investor Subcategories:

• Small NII (sNII): Bids between Rs 2 to 10 lakhs, with one-third reserved in the NII category.
• Large NII (bNII): Bids exceeding Rs 10 lakhs, reserving two-thirds of the NII category.

Investment Limits:

• sNII Minimum: Rs 2 lakhs.
• bNII Minimum: Rs 10 lakhs.

Allotment Process:

sNII Allotment:

• Not fully subscribed (<1x): Full allocation to all applicants.
• Oversubscribed (>1x): Each investor gets at least the minimum application size (~Rs 2 lakhs) through a lottery.

bNII Allotment:

• Not fully subscribed: Full allocation to all applicants.
• Oversubscribed: Each investor gets at least the minimum NII application amount (~Rs 2 lakhs) through a lottery.

Reservation Rules:

• Book Building IPO (Profitability Route): At least 15% reserved for NII, 10% for bNII, and 5% for sNII.
• Book Building IPO (QIB Route): Not more than 15% reserved for NIIs.
• Fixed Price IPO: After allocating 50% to retail investors, the rest goes to individuals, companies, NIIs, and QIBs.

Locking Period:

• No lock-in period for HNI and NII; free to sell allocated IPO shares on the listing day.

Comparison: HNI vs. Retail:

3. Qualified Institutional Buyer (QIB)

QIB in Focus:

• QIBs comprise Mutual funds, Commercial banks, Public financial institutions, and Foreign portfolio investors.
• These entities, registered with SEBI, play a pivotal role in the QIB category of IPO investments.

Diverse QIB Landscape:

• QIBs, such as LIC, Nippon India Mutual Fund, Goldman Sachs, and more, often represent small investors via mutual funds, ULIP schemes, and pension schemes.
• They make substantial investments in IPOs, contributing significantly to market dynamics.

Strategic Investment Approach:

• QIBs commit to bids on the last day of the subscription period.
• Once bids are placed, QIBs are bound and cannot withdraw, showcasing their strategic and calculated investment approach.

QIB Investor Snapshot:

• LIC, Nippon India Mutual Fund, Goldman Sachs, Kuber India Fund, Elara India Opportunities Fund, BNP Paribas Arbitrage, and more.

QIB Allocation Limits in IPOs:

Navigating QIB Quotas:

In the IPO landscape, QIBs play a crucial role with defined allocation limits based on the issue type.

Strategic Allocation Breakdown:

Insights into Allocation Dynamics:

• These allocation thresholds delineate the strategic distribution of shares in IPOs, emphasizing the role of QIBs in shaping investment outcomes.

QIB Holding Secrets:

• QIBs enjoy unrestricted trading as there is no holding or lock-up period post IPO subscription. Immediate selling is permitted upon listing.

Anchored Restrictions vs. QIB Freedom:

• While QIBs are free from lock-in periods, it’s noteworthy that QIB investors qualifying as anchor investors have distinct holding constraints.

QIB vs. HNI/NII: Institutional Contrasts

Decoding Investment Variances:

• This breakdown elucidates the nuanced distinctions in the IPO participation rules, ensuring transparency for investors.

4. Eligible Employees

Companies initiating public offerings often allocate a segment exclusively for eligible employees, providing them with a unique opportunity to participate in the IPO.

Employee Eligibility Criteria:

• The eligibility requirements are clearly outlined in the prospectus document, ensuring transparency and understanding for interested employees.

Inclusion in Employee Eligibility:

• Employees falling under the reserved employee category typically include:
• Permanent or full-time employees of the issuing company, its holding company, or a subsidiary, whether stationed in India or abroad.
• Employees with close relations to full-time or part-time directors.
• Employees closely associated with the entity whose financial statements are consolidated with the issuer’s financial statements.

IPO Employee Allocation and Discounts:

• The IPO prospectus delineates the employee reservation quota and any associated discounts, if applicable.
• As per regulations, the employee reservation quota may not surpass 5% of the company’s post-issue paid-up capital.
• While there’s no specific investment limit for employees, those seeking the employee discount must ensure their investment does not exceed Rs 2 lakhs.

Empowering Employees with IPO Benefits:

• IPO offerings extend various advantages to employees:
• The chance to purchase company stocks at a discounted price, potentially leading to enhanced profits (Note: The discount should not exceed 10% of the price offered to other investor categories).
• A boost in motivation and pride among employees as the company goes public, gaining visibility and establishing itself as a brand.

IPO Employee Lock-up and Discount:

• Shares acquired under the employee reserved category do not have a lock-in period.
• Similar to retail investors, employees can freely sell their shares once the IPO is listed on the stock exchange(s).
• The IPO employee discount serves as a special offering, with details outlined in the RHP document, covering eligible employees, discount amounts, and associated rules, varying by IPO.

5. IPO Shareholder Reservations

Special Quota for Eligible Shareholders:

Certain IPOs allocate a reserved quota for eligible shareholders of the parent company, with detailed information available in the IPO Prospectus Document, covering eligibility, bid limits, allocation criteria, and other rules.

Eligibility Criteria for Shareholders:

• Typically, individuals and HUF shareholders holding shares on a specific day qualify for the shareholder reserve quota, as specified in the prospectus.

Special Rules for Shareholder Reservations:

• Bids under the shareholder reserve category adhere to rules set by the issuing company, clearly outlined in the IPO prospectus document. These rules may vary across different IPOs.

Advantages of Shareholder Preference in IPO:

• Enhanced chances of allocation for shareholders.
• Companies may offer an additional discount in this category.
• Shareholders can invest up to the total number of shares offered in the reserved category.
• Applicants in the shareholder quota remain eligible to apply in other categories, such as retail and employee.
• The option to bid at the cut-off price is available for applications up to Rs 2 lakh.

Shareholder Quota Limits:

• Shareholders are typically allowed to invest up to the total number of shares offered in the shareholder reserved category. Some companies may provide a discount on share prices for IPO applications up to Rs 2 lakh.

No Lock-in Period for Shareholders:

• Shares bought in the shareholder group don’t have a lock-in period. According to retail investors shareholders have the freedom to sell their shares as the IPO is listed on the stock exchange.

6. Anchor in IPO Investments

Understanding Anchor Investors:

• Anchor investors are esteemed financial institutions granted shares at a fixed price before the IPO opens to the public, with a minimum investment requirement.
• In mainboard IPOs, a minimum investment of Rs 10 crores is mandated, and for SME IPOs, it is Rs 1 crore, entailing a lock-in period of 30 to 90 days from the allotment date.

Guidelines for Anchor Investors:

• Bidding initiates one day before the IPO opens.
• No bid withdrawals or modifications are permitted.
• The entire bid amount must be paid during the application.
• Allocation to anchor investors concludes on the bid submission day.
• Promoters, promoter groups, and related persons cannot apply as anchor investors.

Role and Impact of Anchor Investors:

• Their substantial subscription showcases institutional confidence in the IPO.
• Presence of anchor investors enhances IPO authenticity and aids in price discovery.

IPO Anchor Investor Limits:

• Minimum IPO application amounts are Rs 10 crore (mainboard IPO) and Rs 2 crore (SME IPO).
• Up to 60% of the QIB share can be allotted to anchor investors.

Lock-in Period for Anchor Investors:

• Shares look a 30- day lock-in for 50 and a 90-day lock-in for the remaining 50 from the  subsidy date.

IPO Date for Anchor Investors:

• Anchor investors participate one day before the public opening, with bid submission and allocation on the same day.

Comparison of IPO Investors in India: