But, with a huge influx of retail investors, things seem to be changing now. Retail investors are becoming a force that no one can ignore now. In fact, their clout has risen so much that merchant bankers are focusing more on them in this fund raise exercise.
The forthcoming Exxaro Tiles IPO, which will open for subscription on August 4 and close on August 6, has earmarked 40 per cent of total shares for retail investors. Another 35 per cent is reserved for rich investors (which include corporates and retail as well) known as non-institutional investors.
The company has reserved just 25 per cent of total shares on offer for institutional investors. Usually, they get the biggest pie of the share sale, with shares reserved in the range of 50-90 per cent. But times seems to be changing.
Exxaro Tiles and its shareholders plan to raise Rs 161 crore through the IPO at a price band of Rs 118-120. Those who wish to apply for the IPO can do so in a lot of 125 shares; meaning the minimum application amount would be Rs 15,000. The issue is priced at a PE multiple of 16.43 as of FY21 earnings.
Exxaro Tiles’ decision to rely on retail investors to raise money may come from the trend seen in the recent issue. Many of them have sailed through on the first day itself, thanks to enthusiastic retail participation. Demand from them has been such that in some cases they applied for up to 166 times their reserved quota of shares.
Data shows retail investors have poured more money than total issue sizes in many cases. That means the companies could have reserved all the shares for retail investors and still sailed through!
Data also point towards increasing clout of retail investors. In the last six (fiscal) years, the market share of individual investors has risen sharply by 12 percentage points from 33 per cent in FY16 to 45 per cent in FY21, rising sharply this financial year, offsetting a decline in the share of FIIs and public and private companies during the same period, NSE data showed.
In a recent release, NSE said it registered 51.3 lakh new investors in just four months of this financial year.
An influx of retail investors has added more money to the market, often leading to hysterical behaviour, especially when people were chasing quick returns. Many see this retail exuberance for IPOs as a telltale sign of the market peaking.
But merchant bankers are not complaining. They have priced their client’s IPOs aggressively, with price to earnings reaching up to 90 times in some cases. In fact,
IPO saw massive demand even though it is a loss making company and the issue was priced aggressively.
The fact remains that retail investors have tasted blood in the IPO mart, with listing gains consistently reaching up to 100 per cent. As long as they are making money, their love for IPOs may not be lost. And, IPO managers will continue to exploit this new breed of hungry investors.
