Do you know where the country’s affluent are investing their money? It is not in gold. It is in initial public offerings (IPOs) in the stock market. After Wonderla Holiday’s splendid debut in the bourses in May with a 26 per cent gain on the listing day, there has been a scramble for public issues among high net worth investors (HNIs).

The IPO of Shemaroo Entertainment, a company in the business of aggregating and distributing films, saw HNIs putting in bids for 8.6 times the shares offered to them. Two offers that hit the markets just before that — Sharda Cropchem and Snowman Logistics — saw even more frenzied HNI participation. In the IPO from Snowman Logistics, a company in the cold chain business, the non-institutional portion (individual investors betting over ₹2 lakh on the offer) was subscribed 221 times. Against the 63 lakh shares offered, the company received bids for 139.7 crore shares. In effect, HNIs put in bids for ₹6,567 crore, while the entire offer only sought ₹197.4 crore.

Sharda Cropchem’s is a very similar story. The agrochemical company’s HNI portion was subscribed 251 times. Against 33.8 lakh shares offered, the company received bids for 85.03 crore shares, collecting about ₹13,266 crore at the upper end of the price band (₹156). The issue itself was only for ₹351 crore.

Providing further evidence of the newfound appetite among affluent investors for IPOs, recent offers made on the specialised SME platforms of the exchanges have seen enthusiastic response too. The SME platform is designed to attract only affluent investors with a minimum investment of ₹1 lakh. Twenty-one new firms have successfully listed on the SME platform so far this year.

In order to maximise their chances of bagging allotments and making a killing on listing, HNIs often borrow money for a short term to place big bids for IPOs. One reason for the recent IPO rush is the fall in cost of this funding, say market observers.

Since HNIs generally apply for hundreds of lots in an offer, they do it through funding from NBFCs. The rate at which they get the finance determines their level of participation. Arun Kejriwal, a market veteran who runs KRIS, an investment advisory firm, says, “Two years ago NBFCs lent money at (an interest rate of) 9.5-10 per cent for investing in IPOs, but now, it is 7.5-7.75 per cent.”

Dara Kalyaniwala, Vice-President – Investment Banking at Prabhudas Lilladher, however points out that much of this enthusiasm is driven by the prospect of listing day gains that stocks such as Wonderla and Snowman have seen.

So, even if one issue fails to deliver, these investors may go back into their shell.

No retail investors While HNIs have been making a frenzied bid for IPOs; retail investors have not been as enthusiastic. Retail portions in the recent IPOs have also been oversubscribed, but to a far lower extent than the HNI portions. In Sharda Cropchem, the retail portion was subscribed 5.8 times, in Wonderla 7.4 times, and in Snowman Logistics 40.7 times.

It was higher in Snowman’s case because only 10 per cent of the issue was reserved for retail investors compared to the usual practice of 35 per cent, explain merchant bankers.

Retail investors are still wary about entering the market, says Leo Paul George, Business Owner of Vanguard Equities, an wealth management firm.

“Before the election results, retail investors wanted to buy after Modi came to power, but they ended up missing more than 1,000 points in the Nifty. Retail investors come in only when things are good.

“Actually, one should buy when things are going to be good”.

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