The primary market has been abuzz in the last 12 months with a plethora of companies coming out with their initial public offerings (IPOs).
Last year, 43 companies floated their IPOs raising $4.09 billion. Of this, 40 IPOs were launched in the last five months of 2020. The strong trend in the primary market has continued in 2o21 as well, with 40 listings so far.
However, data shows that the majority of funds raised via the IPO route has been to dilute promoter holding or reduce the stake of institutional investors. According to the data available on bourses, 52 percent of the Rs 71,932 crore raised during August 2020-July 2021 have been an offer for sale, wherein promoters/early investors sell their shares and reduce their holdings.
This comes at a time when retail participation in IPOs has reached unprecedented levels in an environment of ample liquidity, and low-to-zero interest rates.
"This is probably one of the best times for the promoters to plan their exit route as the majority of the IPOs have been performing well due to increased investor participation and constructive outlook of Indian companies," said Gaurav Garg, Head of Research at CapitalVia Global Research.
However, as for the retail investors, Garg opined that this is something that they should be wary of before subscribing to an issue.
"If promoters dilute their holdings significantly then investors should try to find the root cause behind the same and then make a decision accordingly. Apart from focusing on promoters’ holdings investors should also look for sound financials and prospects of the sector and the firm together which will help them take an informed decision," he said.
Ajit Mishra, VP-Research, Religare Broking believes this should not be alarming as promoters are looking to benefit from the general bullishness around the market. According to him, it should not play a factor unless promoters continue to reduce stake post-listing.
"The dilution in promoter holding in most IPOs can largely be attributed to offer for sale(OFS) from promoters. The same is not alarming as the promoters do so to get the benefits of listing on exchanges," he said.
"It is considered alarming when the promoters are consistently reducing stake post listing and/or the promoter stake has fallen below 35-40% with no clear explanation given by the promoters/management," he added.