Retail boosts IPO odds via parent shares

A smart move? Investors are reviving an old strategy by buying parent shares ahead of subsidiary IPOs.

- Mayur Bhalerao

For retail investors chasing red-hot maiden offers, getting an allotment has started to feel like winning a lucky draw.

With many recent issues seeing doubleand even triple-digit subscriptions, applying through the normal retail route often ends in disappointment.

According to analysts, retail investors are quietly reviving an old strategy of buying shares of a listed parent company before its subsidiary’s initial public offering (IPO), hoping to qualify for the shareholder quota and improve their chances of allotment.

The idea is simple. Some IPOs set aside a small portion of shares for existing shareholders of the parent or group company. This bucket is much smaller than the regular retail category, but it also attracts far fewer applicants. As a result, allotment odds are usually better. The shareholder quota is typically capped at 10% of the issue size, and in some cases can go up to 15% with regulatory approval.

With IPO demand running into extreme levels, this route has suddenly become attractive again.