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The Indian IPO market witnessed a surge in activity during September 2024, with a record-breaking 41 companies submitting their IPO offer documents to the Securities and Exchange Board of India (SEBI). This surge in activity reflects the growing confidence of businesses across various sectors in accessing capital markets, driven by robust investor demand and a strong IPO pipeline. The strong performance of recent IPOs, with a significant majority opening above their issue price and many continuing to trade above their listing price, further fuels this positive sentiment.
Retail investors are increasingly drawn to the IPO market, recognizing it as a lucrative investment opportunity. The average listing gain across 236 analyzed IPOs stands at an impressive 27%, further increasing to 114% by September 30, 2024. This trend highlights the attractiveness of IPOs for individual investors seeking returns. However, the data reveals that investors tend to sell shares that provide positive listing gains within the first week of listing, with a significant proportion (70%) of shares sold within a year. Interestingly, investors displayed a stronger inclination to sell shares within a week for IPOs with returns exceeding 20% compared to those with negative returns.
Policy interventions introduced by SEBI in April 2022, specifically those related to Non-Institutional Investor (NII) share allotment processes, have had a significant impact on the IPO market dynamics. These changes, along with the Reserve Bank of India's (RBI) guidelines on IPO financing by Non-Banking Financial Companies (NBFCs), have resulted in a notable decrease in oversubscription rates in the NII category, dropping from 38 times to 17 times. The number of applications from 'big ticket' NII investors, applying for more than Rs1 crore in IPOs, has also witnessed a substantial decline from an average of 626 per IPO before the policy changes to a mere 20 per IPO following the implementation of the new regulations. This suggests that the policy changes have effectively adjusted the playing field, fostering a more equitable and balanced IPO market environment.