Combined high net worth bid amount in nine IPOs launched since April 1, including
, was ₹15,900 crore. In comparison, the HNI category in the IPO of received offers worth ₹91,000 crore against shares worth ₹803 crore reserved for them. In CE Info Systems’ ₹1,040 crore IPO, they asked for shares worth ₹70,000 crore compared to shares worth ₹166 crore offered for the HNI class.
Of the nine issues since April, the HNI share has not been fully subscribed in three issues such as Paradeep Phosphates, Delhivery and Prudent Corporate Advisory.
The HNI portion of the other three issues, such as Ethos, Life Insurance Corporation, and Rainbow Children’s Medicare, were underwritten 1-3 times.
“We have observed that HNI clients, who used to invest a large amount, do not even bring their own money to invest in IPOs. The gray market price for IPOs during of this exercise is also not encouraging where HNI can invest,” said Suvajit Ray, Chief Product Officer,
. “We have seen many HNI clients cancel funding due to increased margin requirements and low underwriting volumes.”
In 2021, HNIs made offerings worth ₹100 crore to ₹500 crore in IPOs. They paid finance companies 5-10% for the loan, which was returned shortly after registration. With the Reserve Bank of India capping IPO funding at ₹1 crore per customer from April 1, the window for borrowing large amounts and betting on IPOs has dried up.
Meanwhile, market regulator Sebi reclassified HNIs into two categories from April 1. The first is those who bid between ₹2 lakh and ₹10 lakh in an IPO. The second is the one who invests more than ₹10 lakh. This, coupled with changes to the HNI allocation process, has dampened demand.
“A person who subscribes for ₹100 crore or offers shares worth ₹10 lakh will be allocated equal shares in the new system,” said Dharmesh Mehta, CEO of DAM Capital Advisors. “The non-proportional allocation in the HNI category and the unavailability of HNI subscription data bifurcation discouraged them from participating in IPOs.”
Market participants who follow IPOs have said that unofficial gray market prices for these issues depend on demand, especially HNIs. In the absence of aggressive HNI bids, gray market prices remained subdued, which in turn affected overall IPO subscriptions.
The cost of IPO funding is derived from the extent to which HNIs place bids.
“After the RBI’s rule on limiting IPO financing, HNI’s response to such financing has decreased significantly,” said Nitin Shanbhag, Head of Investment Products,
Private wealth. “While the predominant factor is the restriction of IPO funding, the other aspect is increased market volatility due to the geopolitical crisis, rising global inflation and rising interest rates. by central banks.
Market participants have said that in the next IPO bull market, small individual investors with an appetite for risk could be the next big borrowers to invest in such issues.
“These affluent mass customers will now invest up to ₹1 crore and take funding of ₹1 crore with a 50% margin to apply in IPOs, where they see more value propositions,” Ray from IIFL Securities.