IPO Frenzy Faces Reality Check: Retail Investors Step Back from IPOs

Initial Public Offerings (IPOs) have long been the go-to avenue for retail and High high-net-worth individuals (HNIs) seeking quick listing gains. However, the once-red-hot IPO market is now witnessing a marked slowdown in enthusiasm. Volatility in the secondary market and lofty valuations are forcing investors to take a step back. Let’s explore what’s behind this shift and what the future holds for the IPO market.

The Numbers Speak: A Subdued Response

In 2024, IPOs initially enjoyed massive oversubscriptions, with the first 65 offerings being subscribed an average of 49.5 times. However, the last eight IPOs have only managed a modest average subscription of 1.98 times. Key examples include:

• NTPC Green Energy IPO: Subscribed 2.55 times overall but underperformed in the non-institutional investors (NII) category.
• Other recent IPOs, like Hyundai Motor India, Acme Solar Holdings, and Swiggy, have struggled, with several failing to excite HNIs and retail investors.

Notably, six out of the last 10 IPOs saw the NII portion under-subscribed, while eight of them witnessed retail subscriptions below 4x compared to a staggering 37x average earlier this year.

Muted Returns on Listing Day

Adding to investor scepticism, the listing performance of recent IPOs has been lacklustre. The last 10 companies that debuted on the bourses delivered an average listing day gain of just 6%, compared to the impressive 33% average gains from the year’s earlier IPOs. Some prominent examples include:

• Hyundai Motor India
• Acme Solar Holdings
• Deepak Builders & Engineers
• Sagility India

Several of these companies even ended in the red on their debut day.

The Role of Grey Market Premiums

The grey market, often considered a barometer of investor sentiment, has shown declining premiums for IPOs. Retail and HNI investors, who primarily invest for listing gains, are wary of entering a market that doesn’t promise quick profits. This trend is supported by a recent SEBI study that revealed that 54% of IPO shares allotted to retail investors are sold within a week of allotment.

Lofty Valuations: A Double-Edged Sword

Promoters and bankers, encouraged by the market’s strong run until late September, priced their offerings at hefty premiums. However, this strategy has left little money on the table for investors, leading to subdued demand. Many investors now fear overpaying for companies with uncertain growth trajectories in a volatile market.

What Lies Ahead for IPOs?

Despite the current lull, the IPO pipeline remains robust, with 29 companies holding approval for public offerings and another 59 awaiting regulatory clearance. Together, these could raise over Rs 1.32 lakh crore. While the fear of missing out (FOMO) may eventually draw investors back, issuers will need to price offerings more attractively to reignite enthusiasm.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.