One thing is certain when the market is under a bull rage — fund raising will be easy. Companies, in hoards, launch initial public offerings (IPOs) to capitalise on the positive investor sentiment. Even stiffly valued IPOs will sail through because of a strong demand amid bullish market conditions. Historically, Indian bull markets have seen over 50 IPOs in one cycle. And, this time too, it is no different. Since 2020, close to 35 companies have successfully raised funds through the main board of the exchanges. However, the key difference this time is the mind-boggling participation of non-institutional investors, generally known as high-net-worth individuals.

Easy funding

As HNI allotment is done proportionately, unlike the allotment process for retail investors where it is conducted on a lottery basis, many investors preferred the NII route to make ‘quick and safe’ money. Easy availability of funds from non-banking finance companies at competitive interest rates egged on investors, who became greedy with each passing IPO.

Public issues such as Mrs Bector’s Food Specialities, Mazagon Dock Shipbuilders and MTAR Technologies saw HNI subscription at over 600 times. In fact, as many as 14 companies or 50 per cent of the IPOs, had been over-subscribed by over 100 times by HNIs, fuelled by the ever-growing hopes of listing gains. Investors have a reason to be optimistic: almost 80 per cent of total stock listings in FY21 have witnessed listing day gains, the highest in the last few years.

Facing the heat

However, as the market turned volatile in March, over-leveraged investors have struggled. For instance, the IPO of Easy Trip Planners, which hit the capital market with a price band of ₹186-187, saw a subscription of 382 times from HNIs and over 70 times by retail investors. The high amount of leverage pushed up the break-even cost to ₹280 a share — a tough scenario to make money that could have only sailed through with a decent listing. But, the script saw a twist. The Easy Trip stock listed with a gain of only 15 per cent over the issue price, which meant that investors who had placed leveraged bets lost at least ₹70 on every share allotted to them. Similarly, IPO financing in the Anupam Rasayan public issue too could have cost these high-risk appetite investors dearly. While the IPO was subscribed by 97.42 times by NIIs and 10.77 times by retail investors, it fizzled out on the listing day.

Shares of recent IPOs, including Kalyan Jewellers, Suryoday Small Finance Bank and Craftsman Automation, have listed in the negative, although, HNI subscriptions were not huge in these issues.

Investors must remember the 2008 market crash. The market went into a tailspin because of over-leveraged investments through offshore derivative instruments that brought down even large institutions such as Lehman Brothers. Many retail investors also try to dovetail high net worth investors in IPOs. The RBI is already looking into how to check easy money flow into IPO markets.

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