Startup IPOs: The contrarian view of domestic and foreign institutional investors

The initial public offers (IPOs) of start-ups are getting sold like hot cakes in the stock market as investors across categories are bidding in large numbers for these technologically advanced, but mostly loss-making companies.

The recent past has seen startups like Zomato, Nykaa, Policybazaar and Paytm launch their public issues and make their debut on the bourses. Then there was CarTrade Tech as well, which can be looked upon as a new-age tech-savvy entity though not a pure-play start-up as such.

Most of these ventures made a strong debut as well on the bourses, but one look at the bids put in by investors in the IPOs of these companies throws an interesting trend.

The portion reserved for institutional investors – qualified institutional buyers (QIBs) in market parlance, was highly oversubscribed in each of the offerings, but within the segment, foreign portfolio investors (FPIs) accounted for the largest chunk of the bids.

This was in sharp contrast to the stance taken by domestic financial institutions or DFIs, including banks, insurance companies and financial institutions that collectively put in bids that were mostly much lower than those put in by FPIs.

Interestingly, Paytm, which made its debut today, is an outlier of sorts with FPIs accounting for nearly 99 per cent of all the bids that came in the QIB portion. Guess it wouldn’t be wrong to say that FPIs saw something really great in Paytm, which their domestic counterparts missed completely.

In absolute terms, FPIs bid for 7.3 crore equity shares while DIIs put in bids for a mere 3.72 lakh shares with mutual funds accounting for bids for nearly 3.5 lakh shares.

Even Zomato, which was the first pure-play start-up to launch its IPO earlier this year, saw FPIs accounting for nearly 69 per cent of the total bids that came in the QIB segment with the share of DIIs and MFs pegged at 15.31 per cent and 9.5 per cent, respectively.

Policybazaar was another example with a similar trend as the share of FPIs was a little over 75 per cent with DIIs accounting for 16.16 per cent and mutual funds far behind at 5.64 per cent.

Nykaa, which is also the only profitable start-up to come to the public markets in the recent past, saw a more equitable share between all the categories of institutional investors. Within the QIB segment, share of FPI bids was nearly 57 per cent while DFIs stood at 23.3 per cent. Mutual funds accounted for 6.23 per cent of all the bids within the QIB segment.

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