Rajiv Bajaj, MD, Bajaj Capital, said that retail investors have pumped Rs 7,800 crore in in June.

Of this, Rs 3100 crore came in for the ICICI Bank’s follow-on public offer and Rs 2,700 crore from DLF’s initial public offer, he said.

He feels that retail investors’ interest in IPOs is not waning at this point in time. According to him, new fund offerings from mutual funds are also seeing substantial interest.

Excerpts of CNBC-TV18’s exclusive interview with Rajiv Bajaj:

Q: What do you think is the primary reason behind the retail participation slowdown in the primary market?

A: I think these are all very big size issues and if you see in terms of over subscription percentage, the retail participation may appear to be low but if you see the absolute cash amount that has come in - let me give you a statistics - Rs 7,800 crore has been pumped in by retail investors in the issues, in the month of June, which is close Rs 3,100 crore in ICICI Bank and Rs 2,700 crore in DLF.

So if you see it in absolute amount it is a substantial contribution by retail investors. In fact, being in the retail and distribution industry we have been seeing that retail investors have overstretched themselves to participate in some of these issues. But if you see it in terms of percentage of subscription it may look like 0.98 times or 1 time.

Q: Are you trying to say that retail interest therefore has not dropped at all and that actually what you are looking at is a very robust interest? One would imagine that retail investors have also become richer over the past couple of years, going by the strength in the stock markets. So, as a proportion wouldn’t you expect them to at least come in two or three times subscription? They have not even subscribed once in several of the very big and good issues.
 
A: That is exactly the point I am making; we have to keep in mind the size of the issue. We are talking about the two biggest issues in the Indian capital market and with the largest component, which is 30% reserved for retail investors. So, in terms of absolute cash put in by the retail investors, this is historic. So we should rather look at this as a positive trend and given that these two issues are both medium to long-term ones and retail investors, usually Indian retail investors have had this mindset of sell on listing and having short-term gains; that is how they have looked at IPOs historically.

I think it is a big transition for the Indian retail investor, who has now started putting money in issues like DLF and ICICI Bank, being very aware of the fact that these are good medium to long-term buys and in the near-term they may even be touching their offer price, or even if there is a big market correction, may even for a short period come down below the offer price.

Q: Even the oversubscription in slightly smaller issues like Spice is not overwhelming one; the oversubscription from retail investors is four times. We understand that HDIL still has not got fully subscribed; these are not very large issues. Would you, therefore say that you have your finger on the pulse of retail investors? In the far flung areas, do you think that interest has waned at all?

A: No, I do not think so. I have been saying that figures are speaking for themselves. I do not have the city-based figures handy at this point of time, but my research group tells me that the number of cities, which are participating in IPOs is going up issue-by-issue. So, if I assume that close to 300-400 big cities of top towns of India are contributing to IPOs that would amount to a substantial and deeply penetrated interest by investors in these issues.

One thing, which we have to keep in mind is that it has been a mixed bag as far as the issues listed last year are concerned. Half the issues are trading at a premium to their offer price and the other half are below the offer price. Retail investors have become vary; they are doing their own research and are watching CNBC. They are gathering information from all sources, which is why the response to all issues is not same. They are picking and choosing but the good thing to be noted is that they are investing in quality and they are investing for long-term. That is a very healthy trend.

Another thing I would like to point out is that in addition to equity IPOs, there is also substantial interest in equity mutual fund, as well as equity-based NFOs; and there have been a spate of mutual fund equity NFOs right from April to June and substantial amount of money is being mobilised there as well. 

Q: Is there a loss of appetite as far as sectors such as real estate are concerned? What is the mindset that retail investors have with regard to this sector?

A: Retail investors are very smart and what they like to see is the prices of currently listed stocks in that particular sector. So if you see the real estate stock prices in the secondary market at this point of time, some of them are not doing well as compared to their offer price. So, retail investors take this fact into mind; also, there has been widespread talk of correction in the real estate market and the bigwigs of the industry are talking about a correction in real estate market. So, the retail investor is aware of this fact and is keeping everything in mind, while subscribing to these issues.