Why the right investors matter more than pricing in IPOs: Citi’s Rahul Saraf

For issuers, the message is clear—headline valuations might grab attention, but the real strength of an IPO lies in who stays invested for the long haul.

Getting an IPO’s pricing right in volatile markets is crucial—but not at the cost of investor quality. That’s the message Rahul Saraf, Head of Investment Banking at Citi, drove home at the Moneycontrol Global Wealth Summit on March 7 in Mumbai.

Speaking about the role of merchant bankers, Saraf stressed that beyond the administrative, legal, and procedural aspects, their real value lies in judgment—on valuation, equity positioning, and, most importantly, selecting the right investors.

Also read: India’s average options trade value is $100, very low compared to developed countries, says NSE’s Ashish Chauhan

"The anchor investors are not just large buyers in the anchor book; they’re influencers," he explained. "They set the tone for the issue and can have an interest in the main book or even post-listing acquisitions. You need investors who are rock steady, who will stay in the book longer than most others."

With growing concerns over market trepidation ahead of lock-in expiries, Saraf underscored why careful allocation matters. “Even if it means telling the promoter to price the issue slightly lower, it’s worth it to get the right set of long-term investors on board,” he said.

Read more: More than 200 smallcaps rise between 10-40% as broader indices outperform

For issuers, the message is clear—headline valuations might grab attention, but the real strength of an IPO lies in who stays invested for the long haul.

In another conversation on the panel, he said that despite the current turbulence in India’s primary markets, he sees 2025 shaping up to be an even bigger year for IPOs.

"There’s about Rs 1.5 lakh crore worth of IPOs in the pipeline—already mandated, soft mandated, or likely to be mandated in the next 12 months," he said. But with the markets currently on shaky ground, the question, he admitted, is about timing.

While last year’s IPO rush looked promising at first, it has turned sour for investors. About 70 percent of the issues in 2024 are trading below their listing price, and 45 percent are below the IPO price itself.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.