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The booming primary market is witnessing strong participation from non-institutional investors (NIIs). Driven mainly by HNIs, the average subscription for the non-institutional quota has been 190-200 times in 2020 and so far in 2021 compared to 30-40 times about a decade back. This means, for every share on offer under the NII quota in IPOs, there are 200 competing investors.
Flush with cash and financing, HNIs are going after initial public offerings (IPOs) in a big way as substantial listing day gains have become the norm, say experts. Technically, non-institutional bidders are individual investors, NRIs, companies, trusts etc who bid for more than ₹2 lakh but do not have to register with SEBI like qualified institutional investors (QIIs).
Of the 25 IPOs since 2020, 18 have given a return of 13-131 per cent on the listing day itself. Shares of Happiest Minds, Burger Kings, Indigo Paints and Mrs Bectors doubled on listing day. Only six IPOs declined on the listing day while one closed flat.
The HNI strategy seems to be to take advantage of the hefty gains that IPO shares see on listing date.
Narrow bidding window
Another reason for the huge oversubscription is the smaller bidding quota for NIIs in IPOs. While 50 per cent of the total shares on offer is reserved for QIBs and 35 per cent for small investors, NIIs can bid for only 15 per cent of the issue size. While in the retail segment, valid applicants may get at least one market lot, in the NII segment, the allotment is done on a proportionate basis. This means, if one bids more, the chances of getting more shares allotted are higher.
Before 2015-16, high non-institutional bidding was not a regular occurrence. But with interest rates coming down sharply, borrowing costs have dropped and IPO financing is back with a bang.
IPO financing
Arun Kejriwal of KRIS Research said: “NBFCs are sitting on a huge cash pile of ₹75,000-80,000 crore. The funding period is seven days, as IPO listing timelines have shortened. So, for each IPO, the money gets recycled after generating huge returns within 7 days.”
Out of the 10 IPOs so far this year, RailTel Corp saw 73 times subscription by NIIs; Indigo Paints 263 times, Easy Trip Planners 382 times and MTAR Technologies, 651 times. IPOs of 2020 such as Rossari Biotech, Happiest Minds, Route Mobile, Chemcon Specialty, Mazagaon Dock Shipbuilders, Burger King and Mrs Bectors saw 110-680 times subscription.
An RBI discussion paper recently highlighted how IPO financing by NBFCs has come under close scrutiny, more for their abuse of the system. While there is a financing limit of ₹10 lakh for banks for IPOs, there is no such limit for NBFCs. The paper had proposed to fix a ceiling of ₹1 crore per individual for any NBFC.
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