Sharekhan Blog

IPO Oversubscription Versus Listing Gains

  • Feb 26, 2024

The terms "IPO oversubscription" and "listing gains" are sometimes used synonymously but actually refer to separate aspects of an IPO. So, to learn about issue price vs listing price, read on to.

What do You Mean by IPO Oversubscription?

When an IPO receives more applications than the entire number of shares a given firm provides, it is referred to as oversubscription. To further understand an oversubscribed IPO, let's look at an example.

All investor groups saw a 5.5-fold oversubscription for ABCD Private Limited's initial public offering. This indicates that a total of 55 lakh bids were submitted for this IPO, assuming the issue (IPO) size was 10 lakh shares.

What are Listing Gains?

The difference in between an initial public offering price and the price at which it is listed (first price) on exchanges is known as the listing gain. For instance, Varun requested shares of ABC Limited at the initial public offering (IPO), with an IPO listing price of about Rs 100. Varun received listing gains of 20% on his Rs 100 investment since the stock was quoted at Rs 120 at the time of listing.

Relationship Between Oversubscription And Listing Gains


Listing Gains

High demand for shares during IPO

Positive impact on stock price post-listing

Indicates investor confidence in the company

Potential for significant first-day price increase

Can lead to allocation challenges for underwriters

Attracts more investors, driving up demand further

May result in a higher offering price

Can create a buzz around the company, drawing attention from the market

Reflects market sentiment and perceived value of the company

Positive momentum for future trading

Factors That Influence IPO Oversubscription

  1. Market Sentiment: An over-excitement of the respondent market participants may result in a limited number of IPO shares sold if the market sentiments are seen as bullish.
  2. Company Performance: Investors focus on businesses with good financial credentials and promising prospects, hence attracting more capital compared to lesser promising businesses.
  3. Industry Trends: Sectoral or industry misplaced interest is a usual trend that investors engage in. This is the same reason why they oversubscribe.
  4. Perceived Value: The underpricing of an IPO has a lot to do with the evaluation that investors make regarding its fair value, giving consideration to its competitors within the given sector and future perceptions about the company as a whole.
  5. Underwriting: The trustworthiness of an underwriter is chiefly a function of past performance and reputation, which leads investors to view a particular issue as oversubscribed.
  6. Allocation Policy: Investors who anticipate that the ICO project will allocate more tokens than what is offered may want to preemptively overthrow and participate in an oversubscription.Also Read about IPO Allotment Status

Factors Affecting Listing Gains

  1. Market Conditions: The stock market mood altogether will affect the market greatly. During the uptrend, investors are motivated to buy; thus, there is more demand, and as a result, stockholders could make more income from listing gains. Contrary to that, when the market is bearish, the demand might be lower, and thus, the listing trades will suffer a 'downturn.'
  2. Company Performance: The capital structure and operational success of the issuing company remain the main considerations. Investors evaluate indicators, including the pace of revenue growth, net profit, and the potential size of the market. This will result in the creation of new opportunities for investors, which may lead to increased returns on IPO investment.
  3. Industry Trends: However, geographical advantage ability is not a position that is influenced by developments in the business sector in which a given company works. Economic growth will make stock exchanges more popular among investors who are eager to make profits, but on the other hand, bad times might make it a way for investors to avoid risks.
  4. Size of Offering: The success of IPO on the listing may be correlated with the issue quantity, this mainly includes trade amount and offering rate. On the contrary, not only smaller products can benefit from high demand and thus better profits, but much larger ones must go under a more thorough scrutiny, and thus their profits will become diluted.
  5. Lock-up Period: The listings can become affected by the lockup period that locks in the insiders and early investors who cannot sell their shares immediately. The higher listing supply, which can happen due to fewer shares being held by employees over a shorter lock-up period after the offering, can lead to lower gains in the offeree.

The Bottom Line

Investors who are interested in taking part in an IPO must understand the difference between listing gains and IPO oversubscription. A market for the company's shares is indicated by oversubscription, and listing gains may give insight into investors' opinions of the just listed stock. If investors bear these tips in mind, they may navigate the world of initial public offerings (IPOs) with confidence and make smarter decisions.

Team Sharekhan
by Team Sharekhan

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