According to a report by ET, the number of applicants for these high-risk share sales has risen sharply in recent years. In FY20, an average of only 408 individuals applied for each SME IPO, rising slightly to 511 in FY21. However, in the current financial year, FY25, the average number of applicants has risen to 219,000 per offering.
Despite the inherent risks and the need to invest a minimum of Rs 1 lakh, retail investors are not discouraged.
Big bets, big expectations
Average Profit List Price It stands at an impressive 76% in FY25, with the retail portion oversubscribed more than a thousand times in some IPOs such as Hawk Foods India, Medikamen Organics, Koura Fine Diamond Jewellery and Maxposure.
The surge in interest in retail began in FY23, driven by significant rallies and substantial growth Listing Benefits in some issues. In FY22, the average number of applications was 6,042, with an average listing gain of 19%. This momentum continued in FY23, with the average number of applications rising to 31,500 and listing gains increasing to 29%. FY24 saw even more impressive figures, with average listing gains exceeding 50% and the number of applications reaching 113,000 per IPO.
Pranav Haldea, managing director of Prime Database Group, attributes this enthusiasm to the allure of potential profits in a bullish market.
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“In a bull market, investors invest in all IPOs, hoping to get allotment in some, as there is a high probability of listing gains,” he said, adding that the simplicity of investing through trading apps has made the process more accessible, requiring just a few clicks and allowing funds to remain in the investor’s bank account until allotment.
SME IPOs: A note of caution
The Securities and Exchange Board of India (SEBI) has issued a warning regarding investing in securities of companies listed in the SME segment. This has been issued in response to the rush for SME IPOs. SEBI He said some SME companies and their promoters are resorting to tactics to present a misleadingly positive picture of their operations, and then taking advantage of this momentum to sell their shares at a profit.
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In an effort to bring more consistency to the initial price discovery process for SME stocks, the National Stock Exchange in early July imposed a 90% cap on the offer price for SME IPOs during a special pre-open session on the listing day. It is notable that this year nearly 60 IPOs listed at between 90% and 400% above the issue price.
Many market experts have also advised retail investors to be cautious in this regard.
Haldea highlighted a serious concern. “What is even more worrying is that many retail investors today are relatively new, having opened their demat accounts only in the last 3-4 years. As a result, they have not experienced significant market corrections or major frauds, which makes them more vulnerable to risks,” he said.