The IPO roulette has more spinners and fewer winners, what's your fate?

Retail investors have taken initial public offerings (IPOs) by storm, leading to a record surge in activity and reshaping the landscape of both mainboard and SME offerings. A analysis of data sourced from primedatabase.com showed that over five years, around 45.

5% of IPOs across both the mainboard and SME segments have been oversubscribed by more than 10 times in the retail segment. The share of mainboard IPOs that saw such response jumped from around 38% in 2019 to 58.2% this year so far, while for SMEs the share saw a massive jump from 27% in 2021 to 97% year-to-date.



In 2024 in particular, retail investors' unprecedented participation has led to massive oversubscriptions across IPOs, especially those of small and medium-sized enterprises. The recent offering of Bajaj Housing Finance, which drew 5.9 million retail applications (this year's highest so far), underscores the incredible investor enthusiasm that has ignited the primary market.

Also read: Retail investor interest in IPOs reached new heights in 2024, with an average 1.56 million applications for mainboard IPOs and 0.18 million for SME IPOs in the year so far compared to 1.

32 million and only 78,450 applications on average in the previous year for the respective category. The top five mainboard IPOs of 2024 by retail participation included Bajaj Housing Finance with 5.9 million applications, Premier Energies (3.

5 million), BLS E-Services (3 million), Gala Precision Engineering (2.99 million), and Exicom Tele-Systems (2.78 million),according to data from primedatabase.

com. The mega response is also visible in the significant value of shares applied for by retail investors as a percentage of total IPO mobilization. For mainboard IPOs it was nearly 280% higher, while it was more pronounced for the SME segment, at a whopping 7,224% in 2024.

Pranav Haldea, managing director, Prime Database Group, expressed concern about the rising interest in SME IPOs, pointing out that just 408 retail applications were received per SME IPO on average in 2019-20. In the current fiscal, that number has shot up to 213,000 “The allure of higher returns is the major factor," Haldea said. “This is despite both exchanges and regulators having already taken several steps to make the market aware of the risks involved.

" Also read: However, despite the increasing retail fervour, the odds of securing IPO allocations have become slimmer, with total allocation to retail as a share of total IPO mobilization being just 27.8% and 22.8% for mainboard in 2023 and 2024, and 43.

2% and 38.3% for the smaller segment. Further, according to the analysis, mainstream IPOs saw median listing gains of 18.

1% in 2021, which rose to 21.2% by 2024. The smaller segment, although more volatile, experienced a dramatic increase in listing gains, rising from 3.

1% to 46.9% in 2024 Haldea said that such interest from retail investors will continue as long as significant listing gains persist. “Most retail investors are driven by the potential for quick profits; hardly do retail investors invest in IPOs as a long-term investment," he said.

"The ease of applying for IPOs, with money not being blocked either, further fuels this trend." Meanwhile, a recent study by market regulator Securities and Exchange Board of India (Sebi) observed that 42.7% shares allotted to retail shareholders were sold within a week of listing.

This figure rises to 50.7% within one month and 60.5% within a year.

Despite the current surge, experts caution that the IPO market may not sustain such momentum in the long term. G. Chokkalingam, founder of Equinomics Research, highlighted that the primary market is inherently cyclical.

“Booms in the primary market are often tied to the performance of the small and mid-cap segments," he said. “Once valuations in these sectors reach abnormal levels, corrections tend to follow, leading to a slowdown in IPO activity." Also read: Once the corrections happen, liquidity for primary issues dries up, and the market hits a bottom, Chokkalingam said.

“The current bull run in IPOs may take a break soon, but it will resume when the next boom in the SMC segment starts again," he added..