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HNIs Bet Big on IPOs
Jul 7, 2017

FOMO seems to have gripped the high net worth individuals (HNIs) big time. According to rating agency ICRA, the median HNI subscription in initial public offerings (IPO) shot up to 80 times in FY17 from a mere two times in FY16. In the past one year, IPOs of Avenue Supermarkets (DMart), Thyrocare, Advanced Enzyme and GNA Axel saw the HNI portion oversubscribed by over 200 times.

The HNIs' growing appetite in the buzzing primary market is fueling demand for IPO financing. HNIs typically invest in IPOs for listing gains. But with surging investor interest, these investors are required to make big-ticket applications to increase their chances of allotment. This in turn has given rise to the market for providing short term capital to HNI investors for funding the IPO application.

As banks are prohibited by regulations, non-banking financial companies finance this requirement charging interest rate of 9-12% for seven days. Interestingly, the financing cost has come down after the listing period reduced from 13 days to just seven days which in turn has pulled down the break-even for HNIs further adding fire to the IPO frenzy. But even then, HNIs managed to make positive gains in only 35% of the 31 issuances since April 2016.

Betting on IPOs for listing gains is getting increasingly difficult for the retail subscriber. Rather their focus should turn towards a few good IPOs that could certainly become the multibaggers and create wealth in a few years.

Download this FREE report now and discover How to Get Rich with IPOs. This guide will show you how to safely profit from the 2017 IPO rush.

Data Source: Business Standard, ICRA
Note: 15% of the issue size is reserved for HNIs

This Chart Of The Day was published in The 5 Minute WrapUp - The Aam Investor Has Turned Greedy. What Is the Super Investor Doing?

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