The Indian primary market, once a hotbed for high-net-worth individual (HNI) participation, is witnessing a notable shift. A sharp correction in the secondary market and a significant decline in grey market premiums (GMP) have dampened the enthusiasm of HNIs, leaving institutional investors to anchor initial public offerings (IPOs).

HNI Participation Dwindles
Recent IPO data paints a bleak picture of HNI involvement. Of the last 10 IPOs, eight experienced limited to negligible participation from this affluent category. Notable instances include undersubscription in marquee offers such as Swiggy, Hyundai India, Niva Bupa Health Insurance, and Godavari Biorefineries.

For Swiggy’s Rs 11,327-crore IPO, the HNI portion saw only 41% subscription, despite an overall subscription of 3.59 times the offer size. Similarly, in Niva Bupa Health Insurance’s IPO, only 71% of the HNI quota was taken, though the issue was subscribed 1.9 times overall.

Even in Hyundai India’s Rs 27,870-crore public issue, the HNI portion garnered bids for just 60% of the reserved shares. Sagility India fared slightly better, with the HNI category subscribed 1.93 times, though this still fell short of historical trends.

This is a far cry from the exuberance witnessed just months ago. The 13 IPOs launched in September 2024 recorded an average HNI subscription of 180 times, while the 10 IPOs in August averaged 128 times. Standouts like Manba Finance and KRN Heat Exchanger saw HNI subscriptions soar to 512 times and over 400 times, respectively. Even Bajaj Housing Finance’s Rs 6,560-crore IPO drew HNI interest, with the segment subscribed 44 times.

The Impact of Market Dynamics
Market conditions have shifted dramatically. The Sensex has dropped over 11% since hitting a record high on September 27, creating ripples across the investment landscape. Grey market premiums, a key barometer of IPO enthusiasm, have also plummeted, further discouraging speculative bids from HNIs.

Additionally, rising funding costs are acting as a deterrent. Many HNIs rely on leveraged funds to subscribe to IPOs in bulk, aiming for listing gains. With interest rates climbing and market volatility eroding confidence, the risk-reward balance has shifted unfavourably.

Institutional Investors Take the Lead
Amid dwindling HNI interest, institutional investors are emerging as the backbone of IPO success. For example, in the Rs 2,900-crore IPO of ACME Solar Holdings, institutional investors subscribed 3.72 times, while the retail portion was subscribed 3.25 times.

Bankers believe the involvement of institutional investors has been crucial in stabilizing IPO demand during these turbulent times. “Once there is more visibility and predictability around these issues, and markets witness a few IPOs with a strong after-market performance, HNI demand is likely to rebound,” said Davda of HSBC India to the Economic Times.

Despite the current downturn, optimism remains among market experts. Bankers predict that HNIs will make a comeback once secondary market volatility subsides and IPO pricing adjusts to reflect value more accurately. The expectation is that a few strong listings could reignite confidence and lure wealthy investors back into the fray.

*Inputs from the Economic Times*

Story first published: Wednesday, November 20, 2024, 16:59 [IST]