Retail investors completely averse to putting money in IPOs
February 3, 2010
The government is planning to raise as much as Rs30,000 crore through disinvestment of PSU shares. But it is not clear where the subscription is going to come from. This is because retail investors have simply disappeared from the market. Despite a proliferation of equity products, spread of retail broking outlets and strong performance of equities as an asset class over the past decade, India’s investor population has plummeted from the claimed 20 million in the 1990s to eight million (according to the Swarup Committee report of 2009) and is probably even smaller.
The apathy of retail investors to equity markets is reflected in the extremely poor subscription to all the initial public offerings (IPOs) in the recent past.
For instance, an issue like that of Godrej Properties received a pathetic 0.3% subscription in the retail segment. Godrej, like the name Tatas, inspires trust. Its issue priced at Rs490 a share received just 18,300 retail applications and 50 from HNIs (high networth investors) for its December IPO. Similarly, JSW Energy (Rs95) received 86,559 retail applications and just 97 from HNIs. MBL Infrastructures received 3,616 retail applications and just 29 applications from HNIs. Even DEN Networks (Rs195), which is an associate of Network18 and controlled by Sameer Manchanda, the financial brain behind the Network18 group, received just 3,916 retail applications and 50 from HNIs. The issue was slated at the end of October 2009. Aqua Logistics, which was to close yesterday, had to change its price band and extended the date after failing to attract investors. Clearly, many IPOs just ‘managed’ to scrape through.
Amazingly, all these facts are well-known among issuers, merchant bankers, advertisers and the big media. But there seems to be a conspiracy to keep quiet over the vanished retail investor. It is the media’s job to reveal the facts but if the facts come out, the biggest losers would be the big media such as The Times of India group and Network18. These organisations charge lakhs of rupees for IPO advertisements, touting their massive reach. How would all that spending be justified when IPOs receive less than 4,000 applications nationwide? Hence, the story of pathetically poor retail subscriptions to IPOs is hardly known. — Sucheta Dalal