IPO rush: UPI payments top preference for retail investors

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Even as there is a string of IPOs hitting street, there is an interesting emerging trend in payment methods used by investors to bid or subscribe to the initial public offerings. Retail investors are increasingly choosing Unified Payment Interface (UPI) as the mode of payments to participate in the ongoing IPO mania.

As per the National Payments Corporation Of India, which created UPI, data 1.9 million retail investors applied for IPOs through UPI in June of the total 4.7 million retail IPO applicants during the month as calculated by Prime Database.

Retail investors are allowed to do a share purchase applications of up to Rs 2 lakh in IPOs, which is also the upper limit for UPI transactions in IPOs. The data reveals how UPI has emerged as the favourite mode of payment for small investors, comprising 42% of all retail applications in IPOs in June.

Among IPOs in June, Shyam Metalics and Energy ( Rs 909 crore) received the highest retail subscription (10 times), followed by Dodla Dairy (9.7 times), India Pesticides (9.66 times), Krishna Institute of Medical Sciences (2.13 times) and Sona BLW Precision also known as Sona Comstar (1.21 times).

Concerns, however, remain, given that some public sector and cooperative banks have seen significant transaction failures. The most failures were seen in UPI transactions over Indian Overseas Bank and Punjab National Bank in June, NPCI data showed.

Small investors rushed to bid for IPOs in 2021

It is impossible for new companies launching IPOs to ignore retail investors, their clout has risen so much that merchant bankers of the new IPOs are focusing more on them in this recent fund raise exercise.

The forthcoming Exxaro Tiles IPO, which will open for subscription on August 4 and close on August 6, has earmarked 40% of total shares for retail investors looking at the sharp over subscriptions of the retail portion.

Retail demand for recent IPOs have been on a rise. The lure of stellar listing gains have been attracting many first time investors. As per the NSE data, in the last six fiscal years, the market share of individual investors has risen sharply by 12 percentage points from 33% in FY16 to 45% in FY21. In a recent release, NSE said it registered 51.3 lakh new investors in just four months of this financial year.

In 2021 so far, we have already seen about 28 IPOs hitting street, which have raised over Rs 42,000 crore. 34 others have filed their offer documents with market regulator SEBI for approval. Besides, over 50 more have announced their intention to come with their IPOs this year; these include names from both traditional businesses and new-age technology based companies such as PhonePe, MobiKwik, Grofers, PolicyBazaar and Delhivery.

One must also note that of the 26 companies newly listed this calendar year, only three are trading below their offer price. Six are trading with gains of over 100%, and 12 with gains between 40–100%. All of the 28 IPOs so far have seen their issues getting oversubscribed especially the retail portion.

Retail investors have poured more money than total issue sizes in many cases. This actually shows that even if these companies were to reserved all the shares for retail investors, they could have still sailed through.

While this may be the first big IPO boom for a large number of young and first time investors, experts have been constantly advising caution against new investors getting carried away in the frenzy and getting stuck in non quality stocks.