Retail Allotment In IPOs Dip In 2024 As Loss-Making Large Issues Scale Up

The total allotment for the retail segment in India's mainboard IPO issues has declined from 27.42% in the previous calendar year to 21.6% so far in 2024, according to data from Prime Database. The total value of funds raised via the primary route stood at Rs 52,618 crore in 2024 so far compared to Rs 49,435 crore in 2023.

The dip in the flows by the segment is a result of a statutory regulation set by the market regulator to reduce the risk that retail investors will take on.

The Securities and Exchange Board of India mandates that not less than 35% of the net offer to the public shall be available for allocation to retail individual investors for any book built issue. Not less than 15% will be taken up by non‐institutional investors and the balance 50%, but not more than that, to qualified institutional buyers.

In case the company becoming public has not registered profits in the last three years, only 10% of the net offer will be available to retail individual investors. Qualified institutional buyers can take up the increased risk as they are allowed to take up 75% of the net offer.

Eight out of the 17 companies with large fundraising of above Rs 1,000 crore, or about 47%, did not have a profitable track record in 2024. This compares to just three out of 16 companies, or 19%, in the previous calendar year.

The increasing risk taken by institutional buyers is evident going by the rise in total allotment to them this year. While the total allotment by retail investors declined, the same for institutional investors rose from 56.95% to 63.5% in 2024.

This trend can be seen in both positive and negative perspectives, according to Samir Bahl, chief executive officer of investment banking at Anand Rathi Advisors. Reduced retail participation in loss-making companies may protect them from potential losses but might lead to retail investors missing out in potentially high-growth companies, he said.

"The market needs to protect retail investors along with providing them opportunities for wealth-creation," Bahl said. Regulatory bodies should also try and maintain this balance while ensuring investor protection through oversight and enforcement, he said.

Go Digit General Insurance Ltd., Premier Energies Ltd., Brainbees Solutions Ltd., Ola Electric Mobility Ltd. were among the big issues this year that were loss-making in either one of the last three years. Among other loss-making companies that have debuted on the national bourses include Juniper Hotels Ltd, and Akums Drugs and Pharmaceuticals Ltd.

It is worth mentioning that retail investors sold 42.7% of their allotted shares within the first week after listing, according to a recent study conducted by SEBI that analysed data from 144 IPOs listed between April 2021 and December 2023.

Individual investors in total sold 50.2% of their allotted shares in the same period.

The mainboard IPOs this year are on track to record the fourth highest number. This is bouyed by the positive sentiment from the country's stock market which has been hovering around life highs, aided by domestic flows.

Since April 2024, 34 IPOs have been launched, making this five-month stretch the most active period for primary market activity in at least six years, according to Prime Database.

Foreign investors have been pumping liquidity into India's primary market while the scrips trading in the secondary market have become costlier.

In 2024 calendar year, foreign investors bought shares worth Rs 58,788.5 crore in the primary market which consists of initial public offerings, preferential allotments and sales to large investors, according to data available on the National Securities Depository Ltd. This is the highest since 2021. Meanwhile, FPIs have sold stocks worth Rs 2,978.7 crore in the secondary market.

In another noteworthy trend, fresh issues in Indian IPOs that are on an upward trend have not translated into a proportional rise in growth capital deployment.

In the financial year 2025, fresh issues have accounted for 45% of the total IPOs till September, according to Prime Database. This is a jump from 34% over the corresponding period last year, reflecting a shift towards raising new capital rather than divesting of existing stake. But instead of funding growth via fresh issues, companies are prioritising debt repayment and bolstering working capital.

The country's IPO market continues to be robust, despite concerns of falling profitability. There is a steady pipeline of companies preparing to go public in the coming months, including Hyundai Motor India Ltd., Swiggy Ltd., and Ather Energy Pvt.

India's start-up ecosystem has seen many large start-up companies that are still loss-making but want to raise capital through primary markets, Bahl noted.

If these loss-making companies use the capital raised through IPOs for expansion and operational improvements, it will help them turn profitable and meet future growth plans, Bahl said.

August witnessed IPO fundraising hitting a 27-month high, with 10 companies raising approximately Rs 17,047 crore—making it the busiest period for public offerings since May 2022, according to Pantomath Capital Advisors Pvt.

The outlook for the Indian IPO market remains promising, the firm noted. It projects that domestic companies could raise over Rs 1.50 lakh crore through IPOs in the next 12 months, signaling continued activity and strong investor interest ahead.