November has been a busy month for the primary market. Eight public issues worth a combined Rs 9,500 crore have successfully closed in the month so far. However, the retail portion for four of these eight initial public offerings (IPOs) remained undersubscribed, indicating low individual investor interest.
The four offerings that saw little retail participation were Keystone Realtors, Five Star Business Finance, Fusion Micro Finance and Global Health, which is the operator of the Medanta chain of hospitals.
These IPOs managed to sail through on the back of support from QIBs or qualified institutional buyers. In the case of Keystone Realtors, popularly known as Rustomjee Developers, the QIB portion was subscribed 3.8 times while the retail segment was subscribed only 0.53 times of the allotted quota.
In the case of Medanta, the QIB portion was oversubscribed 28 times while retail quota saw only 0.88 times the allotted portion being picked up.
There have been some exceptions. For instance, retail investors piled into the IPOs of Kaynes Technology (4.1 times) and Archean Chemical (9.9 times). But again, the larger push came from QIBs. The same was the case for DCX Systems, Electronics Mart India and Harsha Engineers.
Low grey market premiums
“Retail participation can be judged from the grey market premiums (GMPs), which start quoting right after announcement of the IPO date. If the GMP is low and chances of listing premium is less, the retail oversubscription will be less,” said Deepak Jasani, head of retail research, HDFC Securities.
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Most retail investors buy shares in an IPO to benefit from the ‘listing pop’ and then quickly book profits. According to market participants, retail investors look for a listing gain of at least 15-20 percent before deciding on putting in their money.
The initial GMP for Rustomjee Developers and Inox Green Energy Services was almost nil. Five Star Business Finance also had zero premium while Fusion Microfinance was trading at a discount in the grey market.
Nothing new to offer?
“Some of the companies which recently went public were all usual businesses with nothing unique to attract investors’ interest,” said Siddhartha Khemka, head, retail research, Motilal Oswal Financial Services.
Vinod Nair of Geojit Financial Services echoed the sentiment. “Barring Kaynes Technology which is a play on the defence theme, other business models were not that attractive,” he said.
For instance, Rustomjee Developers is operating in the highly competitive Mumbai real estate market, Inox Green Energy Services is dependent on its parent company Inox Wind for contracts, while Five Star Business Finance and Fusion Microfinance are in the overcrowded financial services and lending space, pointed out analysts.
Retail participation in IPOs of 2021
2021 was a great year for IPOs, with 63 companies collectively raising Rs 1.18 lakh crore, according to Prime Database. This was the highest amount raised through IPOs in a calendar year, easily beating out the previous best, the Rs 68.827 crore raised in 2017.
“Currently, retail interest in IPOs is better than what we saw in the early months of 2022. But compared to 2021, it is significantly lower,” Manan Doshi, co-founder, of unlistedarena.com, a platform that deals in pre-IPO shares, told Moneycontrol.
In 2021, some IPOs like Latent View Analytics, Paras Defence and Nureca saw their retail portions getting oversubscribed by up to 110 times the allotted quota. The euphoria was backed by a low-interest rate regime, the surge in trading volumes during the pandemic and the Nifty scaling an all-time high of 18,604 points.
This time around, things are different. “Retail investors have been unnerved by a large number of IPOs from 2021 that ended up giving negative returns,” said Jasani. Stocks like Zomato and Paytm are trading much below their issue price. PB Fintech, Fino Payments Bank and CarTrade Tech have bled investors’ money and are down 60-70 percent since listing day.
“Continuous weak and volatile markets in a rising interest rate regime has affected investor sentiment. So despite valuations being reasonable for most of the recent IPOs, retail participation has been lacklustre,” added Nair.
Exercising caution
Retail investors have surely gotten cautious over the last quarter. In Q2FY23, the total retail ownership in the overall market (direct ownership plus mutual funds) declined by 0.4 percentage point quarter-on-quarter to 17.4 percent, according to a Jefferies report.
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This was the first quarter of retail holding decline after five consecutive quarters of increase. “Retail investors have been pulling money out from direct stocks. Retail trading volumes that had jumped to 85 percent of total equity trading volume in mid-2020 have now come down to a long-term average level of 75 percent,” the report added.
Thus, only a revival in the overall broader market sentiment with strengthening benchmark indices can bring back the animal spirits, believe analysts.
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