Explained: What does high HNI participation in IPOs mean for investors?

Among scores of recently launched IPOs, the participation of HNIs in terms of subscription has left behind other categories like QIBs and retailers. For instance, the public issue of Ventive Hospitality was oversubscribed by the HNIs 13.87 times, while QIBs, RIIs, and employee portions fetched 9.08 times, 5.94 times, and 9.60 times subscriptions, respectively. It had received a total bid of 9.82 times. In another public issue, Senores Pharma HNIs category fetched humongous demand and outperformed other categories with a staggering 96.30 times subscription. Here's a summary of other IPOs in which HNIs outperformed other categories in terms of subscription:

• Mamata Machinery: HNI, 274.38 times; QIBs, 235.88 times; RIIs, 138.08 times; and 153.27 times from the Employee portion.
• Afcons Infra: HNI, 5.05 times; QIBs, 3.79 times; RIIs, 0.94 times; and 1.67 times subscription from Employees.
• Deepak Builders and Engineering: HNI subscribed 82.47 times; QIBs, 13.91 times; RIIs, 39.79 times.
• KRN Heat Exchangers: 431.63 times from HNIs; QIBs, 253.04 times; and RIIs 98.29 times.
• Diffusion Engineers: HNIs, 85.95 times; QIBs, 58.51 times; RIIs, 38.34 times; and 45.11 times by Employees.
• Unicommerce eSolutions: HNIs, 252.46 times; RIIs, 130.99 times; and 138.75 times from QIBs.
• Indo Farm Equipment: HNIs, 501.75 times; RIIs, 101.79 times; and 242.4 times from QIBs.

Ever wondered what it means for investors and whether it impacts the stock price on listing day? Here’s all you need to know:

Many financial planners believe that high demand reflects investors' confidence and indicates that IPOs or public issues are viewed as investment opportunities. This event also affects other businesses, particularly those from the same space. It also indicates that such companies can come forward for listing and can lead to a whole new industry and market segment being represented on the exchanges.

According to Srikanth Subramanian, Co-founder and CEO of Ionic Wealth by Angel One, oversubscription plays a vital role in expanding market access and overall participation in the market. “In 2021, nearly Rs 4 lakh crore were locked up in IPO applications, which is roughly 10 per cent of the market cap of all listed companies on the Bombay Stock Exchange (BSE),” Subramanian told Zeebiz.com.

What motivates them to invest that much?

Srikanth observes that HNIs exhibit a distinct investment strategy, falling between retail and institutional approaches. They are drawn to IPOs as an opportunity to invest at early-stage valuations, seeking to capitalize on both long-term company growth and short-term listing gains. For instance, in 2021, HNIs demonstrated a 141.9 times oversubscription rate compared to QIBs (60.9 times) and retail investors (22.9 times).

Does it impact or influence market sentiment, affect stock price on debut/listing day?

A higher HNI participation can lead to overall oversubscription, which may create a buzz in the market and, accordingly, can lead to higher trading volumes and volatility in the stock post-listing, say analysts. However, oversubscription in one category, such as HNIs, can lead to listing gains but doesn't guarantee higher returns, he adds. In recent years, the percentage of IPOs oversubscribed by over 50 times has noticeably increased.

Subramanian explained that 2023 saw 33 per cent of IPOs oversubscribed by 50 times to 100 times, yet 15 per cent of the IPOs launched delivered negative returns on their listing day, indicating that factors like market sentiment, investor expectations, and the company’s fundamentals play a significant role in post-listing performance.