IPO frenzy: HNI bid size falls but number of applications rise

Investors are careful to not have same PAN card numbers in IPO applications, so they turn to friends and family. Many can also create trusts, which have a separate PAN number, experts added.

When a company goes public, there's a rush among high net-worth individuals to make the best out of the listing gains. The old norm was to bid maximum amount in a single application and corner as bigger a slice of the pie as possible.

But the rules they're a changing. Deep pockets are now putting in multiple applications by turning to families, friends, near and dear ones, shows market trends.

"The average ticket size of HNI applications have come down, but the number of applications have definitely gone up," Mridul Mehta, partner for investment banking at Centrum Capital told Moneycontrol. "For instance, an HNI would earlier put up one Rs 50-lakh application and, now they are putting up five Rs 10-lakh applications."

Market data backs Mehta's observation. A case-in-point could be Latent View Analytics IPO, the country's most subscribed issue till date. The non-institutional investor (NII) category was subscribed 850 times, but the number of applications were only 19,425. Compared to that, last week's Tata Tech IPO was subscribed 62 times in the NII category but number of applications were significantly higher than Latent View's at close to 4 lakh.

Also read: IPO Frenzy: Rs 2.5 lakh crore garnered by 5 public issues last week

What's going on?

First things first, the HNI category includes applicants who put in bids worth more than Rs 2 lakh. In April 2022, market regulator Securities and Exchange Board of India (Sebi) changed the allotment rules in the HNI category. Earlier, allotment was done on a proportionate basis. Suppose, an HNI has applied for 100 shares and the IPO is oversubscribed 10 times, then the investor would get 10 shares.

Now, the allotment is done through a lottery. Sebi has categorised HNIs into big (Rs 10 lakh and above) and small (Rs 2-10 lakh) with two-thirds of the overall category reserved for the big ones and one-third for their smaller peers. So, a higher number of applications raises the odds in allotment.

"Nowadays, NIIs apply in IPOs from multiple accounts so that the chances of allotment is higher. For Rs 10 lakh and above, they use trusts while individual accounts are used in the Rs 2-10 lakh category," Suvajit Ray, products head at IIFL Securities, said.

Investors are careful to not have the same personal account number (PAN) in the applications, so they turn to other sources, while some create trusts that have a separate PAN, experts pointed out.

Where's the interest?

But, are the HNIs applying from multiple accounts for all IPOs? No. They go above and beyond only when the grey market premiums are robust, hinting at strong listing gains.

"About 27,000-28,000 NII applicants in the Rs 10 lakh and above category, availed leverage financing last week. These were concentrated in Tata Tech and IREDA IPOs where the grey market premiums were the highest," Ray said.

Also read: IPO frenzy: About 25% HNI applications in Tata Tech, IREDA backed by leverage in record week for primary markets

Tata Tech has a GMP of Rs 410, indicating an 81 percent listing gain on the issue price of Rs 500, while IREDA commanded a GMP of Rs 10, which indicated 30 percent premium ahead of its debut.

That said, frenzied IPO financing for HNIs have come down significantly since 2022. Vikas Khattar, co-head of investment banking and head of ECM at Ambit Capital, said that the quantum has come down after the Reserve Bank of India capped the loan at Rs 1 crore on the amount that NBFCs can lend per borrower per issue.