The previous week, a PSU lender, a Tata firm, a pen producer, and an oil refiner all walked into the major markets, sending investors into a frenzy. So much so that the four initial public offerings (IPOs) raised Rs 2,50,000 crore in total, possibly the greatest mop-up in a week in primary markets. While this only confirms their "buying power," investors are also brazenly leveraging to size up their applications and maximize potential rewards on listing.
According to industry estimates, approximately 60,000 applications were leveraged, accounting for 25% of HNI (high net worth people) bids. This equates to about Rs 62,000 crore of bids received by the four major mainboard IPOs - Flair Writing Industries, Gandhar Oil Refinery, Tata Technologies, and Indian Renewable Energy Development Agency. HNIs are often the most leveraged of all investor types; for retail investors, the application size of Rs 2 lakh does not attract a large number of creditors, according to experts.
"According to SEBI regulations, there are two types of non-institutional investors: big and small. Smaller bids range between Rs 2 and Rs 10 lakh. Leverage is typically used by larger firms that must submit bids in excess of Rs 10 lakh. Around 25% of that category's subscriptions might be leveraged. "The remainder of the oversubscription is due to a flush of liquidity with investors," said Ajay Garg, managing director of Equirus Capital.
Another person in the industry confirmed the estimate. Since SEBI eliminated proportionate allotment in the HNI category, most investors now bid no more than Rs 10 lakh. "So, the average application size for big NII can be considered Rs 10 lakh," according to a source.
Previously, HNIs would place large bids and corner shares in the allotted process. From April 2022 onwards, SEBI altered the rule of proportionate allotment and transformed it to a lottery system in cases of oversubscription.
The interest rates on these loans can range from 13% to 24%, depending on the IPO and the client. The rates may appear high, but the absolute values are minimal because the loan duration is only three to six days currently, thanks to the market regulator shortening listing timelines.
However, Vikas Khattar, co-head of Investment Banking and Head of ECM at Ambit Capital, told Moneycontrol that the amount of IPO financing has decreased in recent years as the Reserve Bank of India imposed a credit cap of Rs 1 crore on the amount that NBFCs can give per borrower per issuance.
