The Hindu Business Line : IPOs losing sheen among retail investors, post-April

If you are an avid investor in initial public offerings (IPOs), the odds on your securing an allotment in the ones that you fancy or getting the quantity that you have applied for, has risen in recent months compared to the situation that prevailed in 2005-06. The reason? Retail investors are applying for fewer shares this time around, than they did in the previous year.

An analysis of the applications received in the case of 95 IPOs showed a dramatic decline in the level of retail response this year compared to the previous year. The quantum of over-subscription (bids received as a multiple of shares offered) has declined from an average of 19 times last year, to just around 5 in the current year, for the retail portion.

Clearly, the runaway investor response to IPOs evident last year, has been missing since April 2006 on the back of a see-sawing stock market and a SEBI crackdown on multiple applications by those masquerading as retail investors. It was in April that SEBI passed its first interim order based on its scam investigations. It froze fresh demat accounts for some depository participants and barred select market players from transacting in stocks to discourage the practise of "cornering" retail allotments. Stock markets too turned choppy from early May, after a sustained rally. This coincided with retail investors greeting IPOs with a less than enthusiastic response. So much so, only a handful of these offers could flaunt double-digit over-subscription numbers.

The market conditions have perhaps cooled not just the retail investors' ardour but the institutional players as well. IPOs floated post-April 2006 have, on an average, received subscriptions for 12 times their offer size, about half the level of 23 times received last year. Though the enthusiasm of institutions and high net worth bidders may have waned, over-subscription numbers for these segments still remain in the double digits.

Secondary market conditions at the time of the offer and the sector to which the company belonged have also played a big role in deciding investor response. Offers made during the market meltdowns of May-June 2006 (Unity Infraprojects, Deccan Aviation) and during the December reversal (Cairn Energy) elicited a lukewarm investor response.

But investors have been willing to make exceptions for companies from "hot" sectors or themes. Offerings from companies with the infrastructure or realty tag (Sobha Developers- subscribed 113 times, Parsvnath Developers- 50 times) and technology/ dotcom companies (Info Edge- 55 times, Tech Mahindra- 70 times) have sailed through, even if they opened amidst uncertain market conditions.