IPOs get retail investors’ attention

Investors fancy IPOs in hopes of higher returns as they overlook other classes

It’s not just the mutual funds where retail investors are pouring money, but also in initial public offers (IPOs) as the expectation of higher returns are forcing them to overlook other asset classes in favour of equities.

After pumping in a record `20,000 crore in various equity schemes offered by domestic mutual funds in August 2017, small investors have turned their attention towards a couple of IPOs that had hit the street in September with the portion reserved for retail investors witnessing overwhelming participation from them.

For instance, public offer from Capacit’e Infrasprojects that was overall subscribed 183 times saw its retail portion getting oversubscribed by 17.57 times.

The `400 crore IPO also saw heavy participation from institutional and high net worth investors. The qualified institutional portion was subscribed 131 times while the HNI portion was susbscribed 638 times.

The trend was similar in the `600 crore IPO from Dixon Technologies where the portion set aside for small investors was oversubscribed 10.60 times.

In the case of IPOs from Matrimony.com and Bharat Road Network where institutional participation remained little subdued saw heavy participation from small investors signalling their high appetite for fresh primary market issuances.

The portion reserved for retail investors in the IPO of Matrimony.com and Bharat Road Network was subscribed 18.16 times and 5.69 times respectively.

On the other hand, their respective qualified institutional buyers’ portion was subscribed just 1.88 times and 1.33 times.

Experts said that the impressive performance registered by IPOs in recent months is one of the primary factors influencing the decision of small investors.

It is the same case with mutual funds where record inflows into equity schemes pushed the total asset under management of the industry above `20 lakh crore for the first time in its history.

“In our view, the strong returns of the Indian market over the past six month (10 per cent) or 12 months (15 per cent) may have increased the return expectations of retail investors and may be one of the reasons behind the recent large inflows into equity mutual funds. Retail investors typically use historical returns from an asset class to ‘determine’ the expected rate of return from the asset class in the future,” said Sanjeev Prasad, co-head and managing director at Kotak Institutional Equities.

However, he added that the Indian stock market cannot keep on delivering returns beyond those justified by earnings growth and fundamentals forever.

“In our view, ‘narrative-based’ investment will eventually require some support from earnings and fundamentals,” he added.