Retail Participation in IPOs: Trends and Analysis

Abstract

Over the last decade, Securities and Exchange Board of India had brought in a slew of reforms with the sole intent of increasing and sustaining retail participation in the market. The extent of participation of retail investors in an IPO can be measured by the times of subscription in the retail category, the number of applications received and the size of the investment. The present chapter studies retail participation in all the 296 IPOs that have been floated between the period 1st April, 2007 and 31st March, 2017. The period from 2007 to 2017 has witnessed a complete business cycle with a boom in 2007 followed by a downturn in 2008–2009 and the intermittent recovery of the markets since 2010, which was further strengthened after 2015. Macroeconomic factors and a host of investor₋friendly reforms introduced in the issue process have had an impact on the retail participation in the IPOs. Over all the assessment indicates that while the retail investor participation in IPOs has declined since the year 2007, the reforms introduced by SEBI have been able to revive the retail interest in the IPOs to an extent. The average size of retail applications has increased with the increase in the investment limit and has gradually shrunk to smaller sizes to get benefit of mandatory minimum allotment.

Alongside, the average number of applications received have increased. The inference is that retail investors are applying in smaller lots. While the number of issues have reduced, the average size of issues has increased. Book building has come to stay as the preferred mechanism for IPOs in India. While the reforms in the IPO process have addressed most of the concerns of retail investors, owing to the low level of IPO activity since the major reforms in the year 2012 until the first quarter of 2017, the full-fledged effect of these reforms on the retail participation could not be experienced.