Does an OFS kill the IPO's buzz?

[SG_13]

@Uditi_Kalra

The Bottom Line: OFS percentage has a moderate impact on investor appetite, with higher OFS leading to notably lower subscription rates. However, when it comes to listing performance, OFS structure plays a minimal role.

Good insights.

@Rohith_Raj

It aligns well with the general market perception that OFS = promoters offloading their stake → often seen as a red flag by retail investors. It’s almost like the company is asking for a big cheque without giving fresh value in return, so the dip in subscription rate makes sense.

But the listing day data is surprising, I assumed high OFS would drag down listing performance too. Looks like the market momentum and investor sentiment still dominate.

My thoughts exactly.

I have another variable in my mind, that i believe is influencing the subscriptions to some extent, “The GMP”

@Uditi_Kalra Maybe in the future, you could also analyse the influence of GMP (grey market premium) on the IPO subscription rates.

If we start collecting the data of GMPs prevailing at the time of IPO, we can see how much they influence these subscriptions.

Maybe the GMP would explain the irrational behaviours or outliers in the above analysis.

If OFS % actually influenced the subscription rates, a higher OFS% should have naturally resulted in lower listing gains because when demand is weak, logically the listing gains should have been sub-par. But somehow that doesn’t seem to be the case in your analysis. (I understand there could be more things at play, than just OFS%)

I feel, irrespective of the OFS / fresh issue %, or how strong/weak the fundamentals of a company is, to a large extent, the subscription rates do seem to be influenced by the GMP data published on few sites which are dedicated for this.

I have no idea what a grey market is, or how it works, or how real these GMP data are, or if they really represent actual off-market demand for a stock. But, if GMP actually influences the subscription rates, ppl can easily rig this data by paying these websites to show higher GMP, to make a company’s IPO look attractive.

In my limited observation, sometimes I felt an IPO stock would underperform (trade at discount or at small premium) while listing, either due its weak fundamentals or high OFS % or both. I was surprised to see that, on most occasions, such stocks had decent listing gains, mainly because the subscriptions were influenced by the GMP figures more than the prospectus of the IPO.

Maybe, there is no method to this madness, it is just greed, and all it takes is an attractive GMP to make ppl subscribe to an IPO (even when OFS% and fundamentals look unattractive)

@Uditi_Kalra

Investors are rational - they subscribe less enthusiastically to high OFS issues but listing day performance is driven by broader market factors beyond just OFS structure

We can expect rational behaviour (worry about OFS% or weak fundamentals) only when ppl intend to hold a stock for long-term, it appears that most ppl don’t hold IPO shares for more than a week , it is all about making a quick buck.

@ShubhS9

Approximately 54% of IPO shares, by value, allotted to investors (excluding anchor investors) were sold within a week of listing.