There are many retail investors in the stock market who do not necessarily understand the market, but still want to participate and profit from it. One of the good avenues that these people had were IPOs (Initial Public Offerings). I know of many who have demat accounts just for the purpose of investing as and when IPOs hit the markets. They subscribe to these, and if they are alloted some shares, they sell those on the day of listing. These investors are not willing to be exposed to the market risk by remaining invested in stocks and are happy with the listing gains (difference in the listing price and the IPO issue price).

Share issues of public sector units (PSUs) were eagerly awaited by these kind of investors. The assumption was that these companies left more on the table for the retail investor, as compared to their private counterparts. Gains of anywhere between 10-20% (and sometimes higher) could be expected and the time period of 2-3 months that took for the whole IPO process (during which time the money was locked) was acceptable to them.

SEBI has introduced a lot of measures that have reduced the procedural time to ~20-40 days. This is good news for the investors. The companies also try to accommodate more and more retail investors during allotment of shares. The investor might not get all the shares it has applied for, but would get some percentage of that.

At the same time, companies have gotten smarter with their pricing (or so I believe). Along with investment bankers, they want to raise the maximum amount of funds from the market. The 10-20% that used to be left for the investors is now too much for even the PSUs.

The latest listings of NHPC (PSU) and Adani Power (private) is a case in point. With the government focusing on the power sector (and infrastructure, in general), many power companies have lined up their IPOs. There was good enthusiasm in the markets for these as it had been a while since the primary markets had been active. The retail part of both these IPOs was subscribed ~3x times. The ratings from the various agencies were good. However, different experts had indicated, before the closing of these issues, that the valuation is a little rich (in terms of not leaving much for the investors).

Both the issues gave a meager 3-5% gain (before taxes) to their investors on listing. Both the stocks were below their offer price within days of listing (NHPC on the second day itself). Neither the company management nor the bankers were apologetic about it. They said that the investors should look at it from a long term perspective and not for flipping shares on the first day. The behaved as if they were unaware of any section of the investors who invest solely for the listing gains.

I would suggest investors to be cautious of all the fund raising that would come along their way very soon. They no longer can assume IPOs as investments that would give good returns quickly. The luck factor (of getting shares allotted) has reduced, but so has the returns. Having said that, I am aware that with so much liquidity sloshing around, some of it would easily find its way to these new issues.

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