The big story in the recent IPO surge has been the huge participation by the retail investors. That is evident from the oversubscriptions seen. The table below captures the retail subscription of last 10 IPOs in Nov-21.
How the retail subscriptions panned out?
IPO issuer | IPO Close Date | Retail Subscription | Overall Subscription |
Go Fashion India | 22-Nov 2021 | 49.70X | 135.46X |
Tarsons Products | 17-Nov 2021 | 10.56X | 77.49X |
Latent View Analytics | 12-Nov 2021 | 119.44X | 326.49X |
Sapphire Foods India | 11-Nov 2021 | 8.70X | 6.62X |
Paytm | 10-Nov 2021 | 1.66X | 1.89X |
Sigachi Industries | 03-Nov 2021 | 80.49X | 101.91X |
PB Fintech | 03-Nov 2021 | 3.31X | 16.59X |
SJS Enterprises | 03-Nov 2021 | 1.38X | 1.59X |
Fino Payments Bank | 02-Nov 2021 | 5.92X | 2.03X |
FSN Ecommerce | 01-Nov-2021 | 12.24X | 81.78X |
The above table shows that despite the bunching of issues in November, the retail portion got oversubscribed in each of the issues, with even IPOs like SJS Enterprises and Paytm that just about got through seeing good retail support. But a clearer picture would emerge if we look at the number of applications.
The IPO of Latent View Analytics got 31.87 lakh retail applications while Nykaa (FSN Ecommerce) got 29.51 lakh applications. But, let us take a broader perspective. The average number of retail applications per IPO was 6.13 lakhs in FY19 and 6.88 lakhs in FY20. This increased to 12.73 lakhs in FY21 and further to 15.68 lakhs in the first 7 months of FY22. That shows the build-up in retail traction in IPO applications. But, what has driven this surge in retail interest?
Surge in Demat Accounts in India
Let us take CDSL as an example. It had 1.23 crore Demat Accounts in March 2017 which grew to 2.12 crore in March 2020, when COVID was at its peak. Ironically, that is when the real growth in Demat Accounts started. Between Mar-20 and Mar-21, the number of Demat Accounts at CDSL grew 58% to 3.34 crore. In the next 6 months between Mar-21 and Sep-21, the number of Demat Accounts grew by another 39% to 4.64 crore.
As of November, the number of Demat Accounts with CDSL stands at 4.96 crore and it expects to touch the 5 crore mark by end of the year. That is the kind of equity cult that has been encouraging participation in IPOs. Of course, these Demat Account are normally accompanied with trading accounts which facilitate IPO investments with ease.
Power of online trading and mobile trading
The surge in Demat Accounts and trading accounts has brought in a lot of first time investors, especially the millennials into the equity fold. For many of the first time equity investors, IPO is an easy onboarding point. With the combination of online trading and mobile app based trading, it is now possible to take IPO investing not only to the smaller cities but even to semi urban and rural areas. That has largely expanded the IPO customer base.
A surge in household brands made the difference
One of the reasons the retail interest in the IPOs has surged is also that a number of very familiar brands have hit the IPO market. For example names like Nykaa, Policybazaar, Paytm, Zomato and CarTrade are extremely strong retail brands that most people identify with. The IPOs by these companies was an automatic extension of an existing relationship.
Procedural changes have made a big difference
Today, the entire time cycle of an IPO has been compressed substantially. For example, it is possible to complete the allotment within 3-4 days of the closure of the IPO and the listing happens within a week. That ensures churn of liquidity. Also, the ASBA facility for retail means that they don’t have to worry about losing interest on funds as they are only blocked till the allotment is finalized. This has substantially improved the ability of retail investors to recycle liquidity at minimal cost.
Proof of the pudding lies in the eating
With all the above factors, retail interest in IPOs would not have build up without adequate performance. Let us look at some statistics. Out of the 52 IPOs that listed till date (including 1 REIT and 1 INVIT), 37 IPOs are trading at a premium currently. That is a 71% success rate in a year which has seen record IPO collections. That has boosted investors confidence.
If you look at the year 2020, then out of the 17 IPOs that listed during the year, all of them are quoting above the issue price. That is the kind of performance that has given a leg-up to the confidence of retail investors. And that remains the theme of the IPO story in 2021.
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*Disclaimer - This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing.
