The regulator found that oversubscriptions have often crowded out those on the lower side of bids of over Rs 200,000. It has suggested reserving one-third of the non-institutional investor quota for those investing between Rs 0.2-1 million, so that they are not crowded out by moneybags bidding far larger amounts. Conversations with market experts suggest that much of the money invested is borrowed. Wealthy individuals invest borrowed money to make a profit on companies expected to rise after listing. The incentive for this seems to be going up when interest rates decline because of lower borrowing costs (chart 2).
Reservations for individuals were seen to bring in new investors to the market. However, retail investors often burn their fingers in IPOs. Additionally, wider equity ownership has happened increasingly through institutional means (like mutual funds) in other markets. Trends over roughly 50 years show individual ownership going down in favour of institutional ownership (chart 3).
Institutions because of size and organisational advantages are often considered able to better assert their rights as shareholders. Institutional investors’ stake has risen from 62.39 per cent by value of India’s publicly available shares (or free float) in June 2009, to 70.35 per cent in June 2021. Individual shareholding has dropped from 19.66 per cent to 18.74 per cent (chart 4).
This could mean that institutional shareholders are the dominant providers of equity capital going forward. Such ownership can have its own challenges such as a bias towards large listed firms. But a debate on at what point individual quotas will have outlived their utility in an increasingly institutionalised market, may well be worth having.
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