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Retail response to recent IPOs and pipeline
20 Mar 2023

CY20 so far has been a lacklustre year for IPO market, disrupted due to the COVID-19 pandemic. In CY19, 16 companies launched their IPOs raising over Rs12,000 crore, and CY20 was expected to be a rebound year, but it again got derailed due to Covid-19. A number of companies that had received regulatory approvals, also postponed their IPOs, waiting for a recovery in the equity markets. Now, with the sharp turnaround in secondary markets and broader market also participating in the rally, the primary market is reviving once again. Slew of IPOs are expected to hit the street in second half of CY20. Promoters are rushing to the primary market to make most of the opportunity. The increase in liquidity flows is also helping their cause.

Post SBI Cards IPO in the start of the CY20, there was lull in the primary market till the month of July. Then the two companies - Rossari Biotech and Mindspace Business Parks REIT, finally decided to hit the market that month and successfully closed their IPOs. They together raised Rs 5,000 crore from investors amid heavy demand. Rossari Biotech was subscribed 80 times and surged more than 60% on market debut. Even Mindspace REIT saw 13x subscription and listed with 11% premium.

The stellar debut by these two companies in July instilled faith in the investors. Soon in the month of September, they were followed by two more companies - Happiest Minds Technologies Ltd and Route Mobile Ltd, who also saw stellar demand for their IPOs. Happiest Mind got subscribed 151 times while Route Mobile got subscribed 73 times.

In the last five months, a lot of new retail investors have come into the market. Since there had not been any lucrative IPO opportunities since March, so retail investors participated heavily in these recent IPOs. They were attracted by strong grey market premium which has the potential to give substantial listing gains. Further the recent IPOs so far were good offers that came after a long time. With rising interest in midcaps and smallcaps, investors were on look-out for new ideas to invest in and these IPOs provided them the same. In addition, with interest rates being very low, and the grey market premium running high, it provided lucrative opportunity for retail investors to participate in these IPOs.

A slew of more IPOs like CAMS, UTI AMC, Angel Broking, Chemcon Speciality Chemicals, etc. are likely to open in September. Besides them, Kalyan Jewellers, NCDEX, Barbeque Nation, Burger King, Bajaj Energy, Lodha Developers are some of the names likely to hit the market in CY20. Of this CAMS and UTI AMC will be big ticket size IPOs. LIC could also join the bandwagon later this year and could be one of the largest IPO in the country ever – going by the company’s size. The government is looking at offloading 25% stake in LIC in tranches, as it is falling short of its divestment target of Rs2.1 lakh crore this fiscal. For this, it is likely to incentivise the participation of retail investors/employees/policy holders by providing some discount.

LIC issue is expected to become India's biggest IPO ever. Given its sheer size, it could make stock exchanges quite broad-based and could change India's weightage and rating across various global indices including MSCI. It could draw huge foreign investments into India. The listing can make LIC one of India's biggest companies in terms of market capitalisation along with Reliance Industries, TCS and HDFC Bank.

If we reflect back at the Coal India IPO, the participation by retail investors in it had been historic and unprecedented. The retail offering was oversubscribed 2.1 times and more than 1.7 lakh retail investors applied for its shares. LIC is likely to raise about Rs80,000 crore from the IPO. Assuming 35% retail portion, about Rs25000-28000 crore would be raised under the retail category which is 2.5x retail participation witnessed during Coal India IPO. Thus LIC IPO could broaden the retail equity shareholders participation in the country.

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