Rise of Retail Investor’s Interest in IPO

IntroductionThe Economic Survey 202324 tabled on 22 July 2024 stated that the Indian stock markets are currently the bestperforming emerging markets globally in 2024 despite global geopolitical turmoils The report noted that the Indian stock market currently ranks as the fifth largest in the world in terms of market capitalisation in the FY 2024 Over the last six years since 2019 the GDP to market capitalisation ratio has significantly improved from 7737 in 2019 to 12437 in 2024Two factors have helped the Indian markets grow over the past year Technological advancements have made investing more accessible for retail investors and regulatory guidelines by the Securities and Exchange Board of India SEBI to protect their interests These factors have led to a remarkable surge of retail investor participation in the Indian stock marketsOne sector where retail investors have shown significant interest is in Initial Public Offerings IPOs So how has the presence of retail investors increased in IPOs over the last year What are the factors driving the increased interest of investors in IPOs Letrsquos answer both these questions and understand why IPOs are currently booming in IndiaData and Analysis on The Rise of Retail Investors in IPOsThere are currently over nine crore retail investors in India who collectively own nearly 1037 of the 2500 listed companies in the Indian stock market through direct ownership In June 2024 over 42 lakh new DEMAT accounts were registered in India making it a new high for the year Even if you consider a percentage of those accounts were just investors opening a new DEMAT account with a different broker it would still ensure a large number of firsttime DEMAT account creations What is pushing this increased number of DEMAT account signups A major reason for retail investors to open DEMAT accounts is the popularity of IPOs in IndiaTo give you an example of the popularity of IPOs in India letrsquos take a look at the performance of IPOs launched this year In 2024 shares that started trading in India have rallied an average return of almost 5737 since their debut much higher than the global average According to data from the Prime Database Group retail investors have invested over 83000 crores worth of shares in the 36 IPOs that have launched in India this year This value is over 12 times more than the portion available for retail investors Retail investors oversubscribed seven IPOs that launched in the last few months by almost 50 timesWhat is the reason for such retail investor demand in IPOs The reason is returns The Exicom TeleSystems IPO launched in February 2024 The retail investor demand for this IPO was over 120 times more than the available amount Once the shares started trading the stock prices rallied over 23037 above the IPO price This allows retail investors to flip their allotments for quick moneyPranav Haldea the Managing Director of Prime Database Group said ldquoMost retail investors basically come in to flip and are not studying the companies sector or financials With the kind of listing gains we are seeing now if one is able to get allotment there is quick money to be maderdquo To help you see how IPO returns promote retail investor interest herersquos a quick overview of the returns offered by some of the mainline IPOs in 2024IPO NameSubscriptionIssue PriceListing Day PriceReturnsEmcure Pharmaceuticals6787x1008135885348137Viraj Iron and Steel12636x20725195217137DEE Development Engineers10303x203335650237TBO Tek8669x92014048552737JNK India Limited2846x41569395672237These shortterm returns are much higher than anything retail investors would get from investment options like mutual fund schemes or ETFs In fact the examples mentioned above only consider mainline IPOs If you consider SME IPOs though they have a higher risk they have offered returns of over 10037 of the investment amount from issue price to listing day So the ability to amass quick returns is one of the core factors driving an increased interest of retail investors in IPOs What are the other factors Letrsquos find outFactors Driving Increased Interest in IPOsThere are three factors apart from the possibility of quick money thatrsquos driving an increased interest of retail investors in IPOs The factors are participation of younger investors market regulator surveillance and market stability Letrsquos explore each factor in detailParticipation of Younger Investors Previously young professionals would invest in real estate after starting work for a few years That trend has passed Young professionals are now investing in stocks and diversifying their portfolios with investments The money they were expected to pay for the downpayment of a real estate property is finding its way into the stock market This is not an isolated case more people are investing in a variety of assets be it for returns or taxsaving purposes This has brought a cushion to Indian stock markets and helped in its resilience and stability against Foreign Portfolio Investor FPI outflowsMarket Regulator Surveillance To protect retail investors against what the regulators state as ldquomalpracticesrdquo there has been increased surveillance by regulators This enhances the trust and confidence of retail investors in the market attracting a larger section of such investors to stock markets Furthermore it also ensures investors are not falling into debt traps authorities have made it harder for retail investors to avail credit for buying shares This is expected to cool retail investor involvement in the marketMarket Stability Stock market analysts have said that the markets are currently stable and the newly formed government is bringing further stability and trust in market resilience A stable market thatrsquos expected to move positively brings flocks of retail investors into equity markets and thatrsquos exactly what is being observed currently in IndiaApart from the factors listed above another crucial factor thatrsquos driving retail investor interest in IPOs is improved knowledge and financial literacy among retail investors Stock brokers are campaigning heavily to improve financial inclusivity in India and it has brought more retail investors to the Indian bourses than ever beforeIPO is BoomingIPOs are indeed booming with companies realising the popularity of IPOs and trying hard to list themselves in the Indian stock markets In FY 24 the number of IPOs have increased to 272 from 164 in the previous year Similarly the amount raised by IPOs has also increased between FY 23 and 24 In FY 23 the amount raised was valued at 54773 crore which rose to 67995 crore in 2024The growth in IPOs was not only seen in the mainline IPOs As per the Economic Survey 202324 the SME platforms on Indian exchanges have also witnessed heightened activity with the number of IPOs and Followon Public Offers FPOs increased from 125 in FY 23 to 196 in FY 24 Fundraising and resource mobilisation through IPOs and FPOs also increased for SMEs with 6095 crore raised through IPOs and FPOs in FY 24To ensure the growth of IPOs is continued in India reports have stated that at least 15 companies are working on launching their IPOs in the coming months of 2024 The combined money raised by these IPOs could cross 11 billion in value Retail investors have earned handsome returns from IPOs and companies have succeeded in their IPO goals with the help of retail investors This has led to surging company valuations and lucrative economic prospects for investors leading to a cyclic increase in both IPO participation of retail investors and more IPOs launching in India For more information about IPOs and to have a strategic advantage over other retail investors with our professional investment tools check out Sharekhan todayDisclaimer The information provided on the Website does not constitute investment advice financial advice trading advice or any other form of advice and you should not interpret any of the financial content as such Please conduct your own due diligence and consult with a financial advisor before making any investment decisions Midday does not endorse or promote any such activities and you access them at your own risk fully understanding the monetary and legal consequences involved Midday shall not be held responsible for any losses you may incur as a result of using any such apps or websites

Rise of Retail Investor’s Interest in IPO

Introduction

Other Articles

Mid-Day Fast

Home / Buzz / Article / Rise of Retail Investor’s Interest in IPO

Rise of Retail Investor’s Interest in IPO

Introduction

Other Articles

Mid-Day Fast