SEBI Considers Cutting Retail Quota in IPOs Amid Weak Demand for Hyundai Motors, Swiggy & Hexaware Technologies
Introduction
Hyundai Motors : The Securities and Exchange Board of India (SEBI) is considering a proposal to reduce the retail investor quota in large Initial Public Offerings (IPOs). This comes after a lukewarm response to high-profile IPOs such as Hyundai Motors, Swiggy, and Hexaware Technologies, where retail participation remained significantly low.
Currently, IPO allocations stand at 35% for retail investors, 50% for Qualified Institutional Buyers (QIBs), and 15% for Non-Institutional Investors (NIIs), including high-net-worth individuals (HNIs). However, leading investment banks and IPO managers have urged SEBI to lower the retail quota, citing concerns that undersubscription in this segment could dampen overall market sentiment and impact stock listing performance.
Why SEBI Is Considering Reducing the Retail Quota
Despite the excitement around recent IPOs, some of the most anticipated issues failed to garner expected retail investor interest. Market valuation concerns, high offer prices, volatile market conditions, and the dominance of Offer for Sale (OFS) issues—where funds raised go to existing shareholders rather than the company—were key reasons behind the subdued participation.
A senior investment banker noted, “Several companies planning large IPOs fear that the 35% retail reservation may remain undersubscribed, potentially dampening overall market sentiment and listing performance.”
Let’s take a closer look at how the three most awaited IPOs of Hyundai Motors, Swiggy, and Hexaware Technologies performed.
Hyundai Motors IPO: A Big Name, But Weak Retail Demand
Hyundai Motor India Ltd, the country’s second-largest car manufacturer, launched its IPO from October 15–17, 2024, with an issue size of ₹27,870.16 crore, making it India’s biggest IPO.
Reasons for Weak Retail Participation
- Large IPO Size & OFS Structure:
- The IPO was entirely an Offer for Sale (OFS), meaning the funds raised did not go into company operations, expansion, or debt reduction.
- High Valuation Concerns:
- Hyundai was valued at 26x Price-to-Earnings (P/E) ratio, compared to its competitor Maruti Suzuki’s 22x P/E and the industry average of 24.41x.
- Volatile Market Conditions:
- Global uncertainties and fluctuating market trends led to cautious investor sentiment.
Subscription & Listing Performance
- Retail investors subscribed only 0.5x of their quota.
- Overall, the IPO was subscribed 2.37x, primarily due to QIBs (6.97x).
- Listing Price: ₹1,934 per share (down 1.3% from issue price).
- Returns: 7% post-listing decline.
Swiggy IPO: Struggling to Win Over Investors
Swiggy, a leading food delivery and grocery service platform, launched its ₹11,327 crore IPO between November 6–8, 2024. The IPO included a fresh issue of ₹4,499 crore and an OFS of ₹6,828.43 crore.
Why Investors Were Cautious
- High Valuation Against Competitors:
- Swiggy was valued at $11.3 billion, while its key rival Zomato (which had been profitable for seven quarters) was valued at $13 billion.
- Operational Losses & High Costs:
- Despite strong growth, Swiggy continued to report high operational costs in technology, expansion, and marketing.
- Market Share Concerns:
- As per Reuters, Swiggy holds 34% market share, while Zomato dominates with 58%.
Subscription & Listing Performance
- Retail investors subscribed 1.14x, while HNIs showed weaker interest at 0.41x.
- QIBs led the demand with 6.02x subscription, bringing the total to 3.59x.
- Listing Price: ₹420 per share (up 7.7%).
- Returns: 28% post-listing gain.
Hexaware Technologies IPO: The Comeback That Fell Short
Hexaware Technologies, a global IT services and AI-driven technology firm, launched a ₹8,750 crore IPO from February 12–14, 2025. Notably, the company was delisted in 2020 by its promoter Baring Private Equity Asia (BPEA) to make strategic long-term decisions outside public market pressures.
Why Did Investors Hold Back?
- Offer for Sale (OFS) Issue:
- Like Hyundai’s IPO, 100% of the IPO was OFS, raising concerns about the lack of capital reinvestment into the company.
- Valuation Concerns:
- Investors were skeptical about the high pricing amid uncertain market conditions.
Subscription & Listing Performance
- Retail investors subscribed only 0.11x, showing minimal interest.
- NIIs and QIBs subscribed 0.21x and 9.55x, respectively.
- Total subscription was 2.79x.
- Listing Price: ₹745 per share (up 5.3%).
- Returns: 4% post-listing gain.
IPO Performance Summary
| IPO | Issue Size (₹ Crore) | Issue Price (₹ per share) | Listing Price (₹) | Premium/Discount | Returns |
|---|---|---|---|---|---|
| Hyundai Motor India | 27,870.16 | 1,960 | 1,934 | -1.3% | -7% |
| Swiggy | 11,327 | 390 | 420 | 7.7% | 28% |
| Hexaware Technologies | 8,750 | 708 | 745 | 5.3% | 4% |
What’s Next?
As SEBI reviews data from investment banks on retail investor undersubscription, a decision on reducing the retail quota in large IPOs could be on the horizon. If implemented, more shares may be allocated to institutional investors and HNIs, potentially stabilizing IPO performance and listing gains.
Q&A Section
1. Why is SEBI considering reducing the retail quota in IPOs?
Due to low retail investor participation in large IPOs, investment banks are requesting SEBI to lower the 35% retail quota to prevent undersubscription and stabilize market sentiment.
2. What were the key reasons for Hyundai Motor’s weak retail participation?
- Entirely an Offer for Sale (OFS)
- High valuation compared to competitors
- Volatile market conditions
3. How did Swiggy’s IPO perform?
- Retail investors subscribed 1.14x, while overall demand stood at 3.59x.
- Listed at ₹420 per share, giving 28% post-listing returns.
4. Why did Hexaware Technologies struggle with retail subscriptions?
- Entirely an OFS issue
- Concerns over valuation and market conditions
5. What changes can SEBI introduce for IPOs?
SEBI may reduce the retail quota and increase allocations for QIBs and HNIs to boost subscription rates and prevent weak listings.
Conclusion
While SEBI has yet to make a final decision, the declining retail interest in large IPOs is a growing concern. The potential quota reduction could reshape IPO participation dynamics, ensuring better price discovery and improved listing performance for upcoming big-ticket IPOs.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.