What Is Lot Size in IPO?

The minimum order quantity (MOQ) in an IPO, also known as the market lot size, refers to the minimum number of shares an investor must purchase or bid for in a single transaction to participate in the IPO. This minimum requirement is established by the issuing company and is typically influenced by various factors, including the company’s share price, the demand for its shares, and its strategy for attracting investors.

For example, let’s consider a hypothetical company, ABC Corporation, that is planning to go public through an IPO. ABC Corporation sets a minimum order quantity of 500 shares for its IPO. This means that any investor who wishes to participate in ABC Corporation’s IPO must bid for at least 500 shares in a single order.Stay updated on the latest Upcoming IPOs 2023!

What is the IPO’s MOQ (Minimum Order Quantity)?

The bare minimum of shares that may be transacted on an exchange is known as a market lot size. This lowest amount of shares that may be purchased or sold on an exchange to take part in the IPO is known as the minimum order size.

For instance, if Company has an initial public offering (IPO) with a minimum order quantity of 700 as well as a market lot size of 100, an investor would have to purchase no fewer than 7lots to take part in the IPO.

This is because initial public offerings (IPOs) are often oversubscribed, which means that there are more purchasers than there are accessible shares. Corporations can assure that only big investors engage in their IPOs by establishing a MOQ.

What is Lot Size in IPO?

The IPO lot size is the minimum number of shares an investor can purchase during an initial public offering, as regulated by SEBI (Securities and Exchange Board of India). It’s a set limit, and investors can buy shares in multiples of this lot size. For instance, if an IPO has a lot size of 20 shares, investors can buy a minimum of 20 shares and then additional shares in multiples of 20. The specific lot size varies between different IPOs, and you can find this information in the IPO application form. Additionally, investors have the flexibility to bid for more shares by applying in different lot sizes.+

As mentioned earlier, the lot size represents the minimum number of shares that an investor must purchase in a single transaction. To acquire more shares than the IPO lot size, investors must apply for multiples of that lot size.

Let’s illustrate this with a straightforward example:

Company ABC ltd is launching an IPO with a lot size of 20 shares for each transaction. In this scenario, Mr. Naren cannot bid for 1, 2, or 5 shares when applying for IPO shares. He must bid for an entire lot of 200 shares. However, if he wishes to bid for more than 1 lot, he needs to apply for multiples of 200 shares.

This means:

1 lot = 20 shares

2 lots = 40 shares (20 * 2)

3 lots = 60 shares (20 * 3)

4 lots = 80 shares (20 * 4), and so on.

Suppose the maximum lot size is 20. In that case, Mr. Naren can apply for a maximum of 400 shares.(20*20)

How do minimum order quantity and market lot size affect an IPO?

These two elements should be taken into account when investing your tight money in an IPO since they are crucial to the stock market. The minimal quantity of shares that may be exchanged on the securities exchange is known as the market lot size. For instance, for an asset to float on the stock market, an investor must purchase a minimum of 10,000 of them.

Every business that officially launches conducts an initial public offering, aka IPO. The minimal amount of stock that can be bought or traded in a single exchange is known as the market lot size. The fewest possible shares that may be exchanged in a single order are known also as minimum order quantity.

The business and underwriters determine these two factors because they have a significant influence on the way an IPO will go, which is frequently dependent on the price of both the shares being issued. Small investors may find it challenging to participate if the market lot size is very big. This can reduce interest in the stock and make it more difficult to sell every one of the shares. It could be challenging for buyers to locate sellers who are prepared to trade lower quantities of the product if the MOQ is set too high. Furthermore, this can reduce demand and make it more difficult for the corporation to sell its shares.

So, there is a justification for establishing these restrictions to prevent investors from purchasing too few or many shares at once. Keeping the equilibrium is the best goal.

Wrapping Up

Investors can discover it simpler to invest in an IPO with a lower market lot size. Yet, there are also drawbacks. Large institutional investors may be less interested in lower market lot sizes, while ordinary investors may find it more difficult to participate if the minimum order size is high. To draw in the correct mix of investors, it is crucial to strike the proper equilibrium between these two elements.