Retail investors being selective when it comes to IPO subscription

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So far, the month of August has seen eight IPOs (initial public offerings) hit the street raising cumulatively close to Rs 15,500 crore. While none of the issues is as of now are listed on the bourses and are expected to make their debut in the next week and the week after that.

Amidst the IPO rush, an interesting trend has emerged is that retail investors are losing appetite for IPO going by the subscription numbers. The first week of August saw companies like Devyani International, Krsnaa Diagnostics, Windlas Biotech and Exxaro Tiles raising over Rs 3,600 crore that saw a great response from retail investors. Retail investors pumped in as much as Rs 18,242 crore in the four IPOs. That apart retail portion of these IPOs were subscribed in the range of 24x to 42x taking the average subscription to 36x.

If we compare these numbers to that of the IPOs that hit the street this week to raise Rs 11,875 crore were CarTrade Tech, Nuvoco Vistas Corporation, Chemplast Sanmar and Aptus Value Housing Finance the response from retail investors was subdued. Retail investors pumped in Rs 6387.78 crore. Even the subscription was seen in the range 0.73x to 2.75x with an average of for the four IPOs to 1.78x.

Commenting low subscription numbers by retail investors in the second week of August Abhay Doshi, founder of Unlisted Arena who tracks and deals in unlisted shares said that, “subdued response to some recent IPOs which has certain specific reasons like the correction in mid/small cap which shook the sentiments of investors. Another prime reason was most of the IPOs were expensively priced and growth - valuation equilibrium was not favourable.”

According to Doshi, retail investors have not lost their appetite as the primary market had always been an attractive segment for retail investors and FY20-21 has delivered stellar returns.

Nearly 60 companies have filed with the market regulator Sebi (securities and exchange board of India) to launch their IPOs. Market participants are of the opinion that the ability of the companies to mobilize money through IPO will depend on how strong and long the rally in the secondary markets continues.

“Again, if good IPOs taps the market with an attractive valuation, leaving something for investors, we will again see some record-breaking subscription going ahead,” Doshi added.