Retail participation in the equity market has just reached an inflection point due to the low interest rate regime amid lack of investment-worthy avenues that can generate a good return for investors.
The retail frenzy over initial public offers (IPOs) seen over the past few months is not without reason.
Over the past two years, 61 companies have tapped the primary market and raised funds via IPOs.
Of these, 24 companies (nearly 39 per cent companies) have more than doubled at the bourses with Happiest Minds, IndiaMart Intermesh, Indian Railway Catering and Tourism Corporation (IRCTC), Affle India and Route Mobile surging 468 per cent to 722 per cent since their listing date till now.
Retail participation in the equity market, according to analysts, has just reached an inflection point due to the low interest rate regime amid lack of investment-worthy avenues that can generate a good return for investors.
“IPOs typically hit the market when the liquidity is good – and it is good right now. Retail investors and banks are flooded with liquidity.
"A lot of high networth individuals (HNI) and MF money are also chasing stocks. Given this, the participation in the IPOs and companies tapping the primary market will continue for a while.
"The IPO frenzy will continue and the retail participation will be healthy,” said Prakarsh Gagdani, chief executive officer, 5paisa.com – one of the first and the largest discount broking firms in the country.
According to reports, as many as 12 firms have raised Rs 27,000 crore via the IPO route in the first four months of the current fiscal (FY22).
In FY20, a total of 13 companies had mopped up Rs 20,352 crore through IPOs, while 14 firms had floated IPOs in FY19 to raise Rs 14,719 crore, reports suggest.
That said, given the subscription levels of some of the recent IPOs, analysts have started to be cautious and suggest investors do not subscribe to every IPO that hits the Street.
“There have been loss making companies as well that have tapped the primary market and have seen a good listing.
"One needs to be cautious now and not blindly subscribe to every IPO that hits the Street.
"The markets are becoming frothy now and a correction could just be round-the-corner. On Tuesday, the mid-and small-cap indexes underperformed the markets after a long time, which is an indication that the markets could be close to topping out,” said G Chokkalingam, founder and chief investment officer at Equinomics Research.
At the macro level, analysts expect the markets now to enter into a consolidation phase after a good run over the past few months.
Corporate earnings, they say, will continue to recover as the economy opens up for business after the second wave of the Covid pandemic earlier this year.
“The Nifty now trades at 12-month forward P/E of 20.5x and P/B of 3x, above long-period average (LPA).
"Thus, the risk-reward is relatively less lucrative in the near term,” cautions Gautam Duggad, head of institutional research at Motilal Oswal Securities.