How To Sell Shares Allotted In An IPO?
An IPO allows a private company to become publicly listed by offering its shares to investors for the first time. The ease of applying for an IPO, combined with transparent pricing, has led more retail companies to successfully join equity markets. Once you receive shares in your demat account, you face two choices: hold for potential appreciation or sell to lock in profits. Deciding IPO sell time requires an understanding of market dynamics, settlement procedures, and applicable taxes.
In this blog, we will explore the steps involved in how to sell an IPO on listing day, as well as strategies for selling post-listing to align with your financial goals.
Understanding IPO Allotment
Before you can sell your IPO shares, you must first understand how allotment works and how shares reach your demat account.
What Is IPO Allotment?
When an IPO opens, you submit an application through your broker, specifying the number of shares you wish to bid for at the issue price. After subscriptions close, the registrar such as Link Intime or KFin Technologies calculates the total demand against available shares in each investor category (retail, non-institutional, and qualified institutional buyers). In case of oversubscription, retail investors often face a lottery-based allotment system.
Checking Your Allotment Status
You can confirm your allotment by visiting the registrar’s website or your broker’s platform. Enter your PAN, application number, or client ID to view whether shares have been earmarked for you.
Credit To Your Demat Account
Allotted shares are credited by T+2 working days after allotment finalisation. For instance, if the allotment is confirmed on Monday, shares appear in your demat account by Wednesday, provided there are no exchange holidays. Always verify that your demat and trading accounts are linked to ensure smooth trading once your shares list.
Listing Day and Market Debut
The listing day is the first trading session for IPO shares and often determines immediate gains. Understanding the structure of listing day helps you decide whether to sell immediately or wait.
Timing and Pre-Open Session
On listing day, trading begins at 10:00 AM IST instead of the usual 9:15 AM. In the pre-open session, orders accumulate for five minutes, after which the exchange match engine determines the opening price based on buy and sell orders.
Opening Price Dynamics
If demand greatly exceeds supply, the opening price can be substantially higher than the issue price. For example, a company priced at ₹200 per share may open at ₹260 if interest is strong. On the other hand, low demand may lead to a listing discount.
Should You Sell on Listing Day?
Many investors aim to capitalise on listing premiums. Selling on listing day can give instant gains, but it also means foregoing potential long‑term upside. If your objective is short-term profit, executing a sell order soon after the opening auction may be ideal. Always monitor the pre-open indicative price to gauge opening levels.
Strategies To Sell IPO Shares
Selecting an exit strategy is crucial. Here are some approaches you can adopt:
1. Sell Entirely on Listing Day
If you prefer a clear-cut outcome, place a market sell order once trading commences. This captures any listing-day premium in one go. However, if the stock opens at a discount, you may incur a loss.
Tip: Set a limit order slightly above the pre-open indicative price to avoid unexpected slippage.
2. Partial Sell on Listing Day
Recover your capital by selling enough shares to offset your initial investment. Suppose you invest ₹30,000 at ₹200 for 150 shares and the stock opens at ₹280. Selling 108 shares yields ₹30,240, covering your outlay while retaining 42 shares for future gains.
3. Installment Selling Post‑Listing
Spreading sales across quarters can balance risk and reward. You might choose to sell 10% of your holding after each quarterly result, using corporate performance as a trigger. This lets you benefit from sustained growth while booking partial profits.
4. Hybrid Approach: Upfront and Quarterly
Sell 50% of your shares at listing to recover most of your cash outflow and then offload the remaining 50% in five 10% tranches each quarter. This strategy can be effective when a stock lists at 40%–50% premium, allowing you to lock in gains steadily.
Selling IPO Shares Post-Listing
If you decide not to sell immediately, here is how you execute post‑listing trades and factors to keep in mind.
How To Place A Sell Order
- Log in to your broker’s trading platform
- Select the IPO stock from your holdings.
- Enter the number of shares you wish to sell.
- Choose order type:
- Market Order: Executes at the best available price.
- Limit Order: Sets a minimum acceptable price.
- Confirm the order.
Settlement and Funds
Upon execution, the sale proceeds, after deducting Securities Transaction Tax (STT) and brokerage, credit your trading account by T+1 working day, though exchanges may opt in for a T+0 pilot on select stocks. You may then transfer funds from your trading to your bank account.
Monitoring Market Signals
Post-listing, watch corporate announcements, quarterly results, and sector trends. For example, positive earnings surprises or strategic partnerships may drive the share price up, suggesting a hold strategy. Conversely, negative news could signal an exit.
Factors To Consider Before Selling IPO Shares
Selling without a plan may undermine your returns. Here are key considerations:
Risk Appetite
Assess how much volatility you can endure. If you are uncomfortable with sizable intraday swings, you may prefer selling sooner rather than later.
Financial Goals
Align your selling strategy with goals - short‑term gains, funding a purchase, or reallocating wealth. Your objectives will dictate IPO sell time.
Lock‑In Restrictions
Certain IPOs impose a lock‑in for promoters and pre‑IPO investors, but retail shares are typically free to trade post-listing. Always confirm there are no unusual restrictions on your allocation.
Tax Implications
Selling within one-year triggers short‑term capital gains tax (STCG) at 20%, whereas holding beyond one year may qualify for long‑term capital gains (LTCG) treatment. The benefit of LTCG includes a tax exemption on gains up to ₹ 1.25 lakh, and a reduced tax rate of 12.5% on gains over this amount.
Market Conditions
Broader indices, sectoral shifts, and global trends can influence share performance. Avoid selling in panic during market downturns unless fundamentals deteriorate.
Taxation On IPO Gains
Taxes can significantly affect net returns. Here is how capital gains on IPO shares are treated under Indian law.
Short-Term Capital Gains (STCG)
If you sell within one year of allotment, gains are taxed at 20% plus applicable surcharge and health and education cess.
Example: You bought shares at ₹150 and sold at ₹ 250 within six months, realizing a ₹100 gain per share. On 1,000 shares, your profit is ₹1,00,000. STCG tax = 20% of ₹1,00,000 = ₹20,000.
Long-Term Capital Gains (LTCG)
Holding shares for more than one year means gains up to ₹1.25 lakh in a financial year are tax‑exempt. So, in the previous example, if you sold the shares after one year, you would not have to pay any tax since your gains are less than the exempted limit.
Any amount above ₹1.25 lakh attracts 12.5% tax without indexation benefits.
Securities Transaction Tax (STT)
When you sell shares on the exchange, STT at 0.1% on the sell-side turnover is deducted automatically. This is in addition to brokerage and GST on brokerage.
Reporting In ITR
Declare your capital gains under Schedule CG while filing your Income Tax Return. Maintain transaction statements from your broker for accurate reporting.
Conclusion
Knowing how to sell IPO shares and selecting the right IPO sell time are important to maximise your returns and limit risks. Whether you choose to sell on the listing day, partially recover your investment, or hold for long‑term appreciation, each decision should be in line with your financial objectives, risk tolerance, and market conditions. Understand the mechanics of allotment, listing procedures, order placement, and tax obligations to execute trades confidently. With informed planning and disciplined execution, you can maximise the potential of IPOs effectively.
Additional Read: 8 Tips to Increase Your Chances of IPO Allotment
8 key factors to consider before buying an IPO
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FAQ
Can I sell IPO shares on listing day immediately after the market opens?
Yes. Trading opens at 10 AM IST on listing day. Once the pre-open session (9:55–10:00 AM) determines the opening price, you may place a sell order.
How do I decide IPO sell time on listing day?
Monitor the pre-open indicative price. If it shows a significant premium (for example, 30–50%), placing a sell order soon after the opening auction may be wise.
What if my shares don’t reflect in my trading account on listing day?
Confirm that your demat and trading accounts are linked. If shares still do not appear, contact your broker’s support team immediately.
Is it better to use a market order or a limit order when selling?
A market order ensures execution but may suffer price slippage. A limit order gives price control but carries the risk of non-execution if the market moves away from your limit.
Are there any lock‑in restrictions for retail investors on IPO shares?
Typically, retail allotments are not subject to lock‑in. However, always check the IPO prospectus for any specific conditions.
Can I sell only some of my allotted shares?
Absolutely. You may choose to sell a portion of your holding, say, enough to recover your capital and hold the remainder.
How often should I review my selling strategy post‑IPO?
Review at each corporate event like quarterly results, board announcements, or sector developments to determine whether to sell additional shares.
Do I need PAN or Aadhaar to sell IPO shares?
You must have a PAN linked to your demat account. Aadhaar is required for KYC when opening your account, but you do not need it for each transaction.
How are securities transaction taxes applied when I sell?
STT of 0.1% on the total sell value is deducted at source by the exchange. Brokerage and GST on brokerage are additional costs.
Can I offset IPO losses against other capital gains?
Yes. Short‑term capital losses can offset gains under STCG or LTCG. Long‑term capital losses may only offset LTCG. Ensure accurate calculations in your ITR.