Sucheta Dalal :Poor retail response to IPOs rings alarm bells
Sucheta Dalal

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Poor retail response to IPOs rings alarm bells  

February 10, 2010

Retail investors continue to shun public issues. This has at last created panic among decision makers. The pride of the nation, National Thermal Power Corp (NTPC), managed to get an overall subscription of 1.2 times for its follow-on offer (FPO) with a retail participation of just 16% of the total 42.8 million shares reserved for the retail investors’ category. For its total shares on offer, NTPC received a dismal 80,000 applications from retail investors all over the country. This will be no surprise to the readers of this website. On the day NTPC opened, Moneylife had written that the NTPC issue will not attract retail participation thanks to a variety of reasons (see here). The issue opened on 3rd February.

More than NTPC, the high-profile DB Realty’s initial public offering (IPO) has failed miserably. After spending a whopping Rs13.50 crore for advertisements in the Times of India (ToI) group alone, the DB Realty IPO, which opened on 29th January, received just 23,000 applications for its Rs1,500-crore issue. It received a pathetic 457 applications from high net-worth individuals (HNIs). It is a different matter that even the ToI group advised its readers to stay away from the DB Realty IPO! (

The gross and continuous failure of issues to attract retail subscriptions has started ringing alarm bells among decision makers. If this continues, the government’s disinvestment programme will be badly affected. Poor retail participation is the result of years of poor regulation and malpractices by market participants, which have caused equity products to perform very poorly. “It is a crisis situation,” says an IPO expert.

The crisis has been building up over a period of time. Godrej Properties received 18,300 retail applications and 50 from HNI investors for its IPO. JSW Energy received 86,559 retail applications and just 97 from HNIs. MBL Infrastructures received just 3,616 retail applications and only 29 applications from HNIs. Den Networks (Rs195), an associate of Network18, received 3,916 retail applications and 50 from HNIs at the end of October 2009. Aqua Logistics, which was to close on 2nd February, revised its price band downwards and extended the date after failing to attract investors.

The disinterest of employees is another feature of many IPOs. The employee segment of MBL Infrastructures received only 26 applications (0.12% subscription); Astec LifeSciences received 55 employee applications (0.5% subscription), while Euro Multivision had an embarrassing 16 employee applications (0.3% subscription). Even in the case of NTPC, out of the total 42,73,220 shares reserved for the employee category, only 43%(18,73,807) of the shares were subscribed. If employees are unconvinced about a company’s pricing and prospects, how can it attract others?

As the government gets ready to raise Rs30,000 crore through disinvestment of PSU shares, its biggest worry ought to be the vanished retail investor. But regulators and officials are busy fighting turf battles or protecting personal interests. Meanwhile, India's investor population has plummeted from the claimed 20 million (probably exaggerated) in the 1990s to eight million (according to the Swarup Committee report of 2009), and is probably even smaller in reality.
Sucheta Dalal & Ravi Samalad


-- Sucheta Dalal