Market mystery: Why retail investors shun some of the biggest IPOs

Hyundai Motors India's listing is the latest in a trend seen over the years

The main board initial public offering (IPO) market is quite bullish with 64 such issues being listed on stock exchanges till Tuesday this year, the highest in more than five calendar years. As many as 63 IPOs were floated in 2021 but in the entire year.

 

As many as 43 IPOs were issued till October 29 in 2021 with an aggregate amount of Rs 73,525 crore compared to Rs 92,631 crore in the same period roughly this year.

 

Only one IPO – by Hyundai Motors India – did not get full subscription from retail investors this year despite it being the biggest public offer. In the pandemic year of 2020, one IPO – of Gland Pharma – was shunned by retail investors but that time only 15 such offerings hit the market. (Chart 1) 

 

Main board IPOs can only be issued by companies which meet certain eligibility criteria, such as having paid-up capital of Rs 10 crore and an average annual profit of Rs 15 crore for the past three years.

 

When it comes to IPO amount, Gland Pharma constituted around one-fourth of the total size of such public offers in 2020. Hyundai accounted for a bit over 30 per cent of the total amount this year.

 

As many as five IPOs in the past five years and ten months have tried to garner more than Rs 5,000 crore from the market but could not enthuse retail investors. (The combined IPO size of four of them was less than what Hyundai has mopped up). (Chart 2). 

 

Why do retail investors shun some IPOs?

 

Pranav Haldea, managing director of PRIME Database Group, says retail investors primarily come in for listing gains, citing a study by market regulator Securities and Exchange Board of India.

 

Retail investors look at the grey market for gauging premium on the listing day.

 

In the case of Hyundai, there was no grey market premium which supposedly indicates the expected listing pop, says Haldea. This is buttressed by Chart 3 but not for all such shares. While Gland Pharma, Star Health and Delhivery closed up their issue price on opening day, only Gland Pharma settled above it on Thursday.