Mumbai: Correction in the secondary market and sharp decline in gray market premiums have driven wealthy investors away from the primary market, giving way to institutional investors to ensure the success of initial public offerings.

Eight of the last 10 IPOs have seen limited or minimal participation from high-net-worth individuals (HNIs). HNI segments for Swiggy, Hyundai India, Niva Bupa Health and Godavari Biorefineries were undersubscribed, while the other four barely managed single-digit subscriptions. This is in stark contrast to the average HNI subscription of 116 times in the previous 10 IPOs.

In the public IPO of Niva Bupa Health Insurance, only 71% of the shares allocated to HNIs were subscribed, while the total number of subscribers was 1.9 times. Swiggy’s ₹11,327 crore IPO saw subscriptions for the HNI portion at 41% despite the share sale receiving bids of 3.59 times the offer size. HNIs bid for the entire quota allotted to them (1.02 times) in the 2,900-crore ACME Solar Holdings bid, where subscriptions for the retail portion were 3.25 times and from institutional buyers 3.72 times.

Cooling markets, collapsing gray market premiums and rising financing costs have significantly reduced HNI interest in IPOs, bankers said.

“If you look at Sebi’s research on IPOs, it clearly reveals that most of the HNIs subscribing to the IPO are unlisted. Essentially, the subscription level in an IPO is a function of the gray market premium,” CEO Nikhil Ranka said. Investment officer-shares at Nuvama Asset Management. “As markets calmed and gray market premiums collapsed, interest in IPOs has largely diminished.”

Sensex has fallen more than 11% since September 27 after touching a record high. In India’s largest IPO – Hyundai India’s ₹ 27,870 crore IPO – only 60% of the HNI portion received bids, while in Sagility India it was a modest 1.93 times. “Increasing domestic and global concerns have led to softness in non-institutional demand in recent IPOs,” said Ranvir Davda, co-head of investment banking at HSBC India. “This shift in sentiment can mainly be attributed to corporate earnings in India being under pressure in the second quarter, a sharp rise in the inflation report in October, geopolitical issues, volatility in the run-up to the US elections and uncertainty over the timing of the Fed rate cut.”

An average of 180 times HNI subscription was recorded in the 13 IPOs launched in September, while an average of 128 times HNI subscription was recorded in the 10 IPOs in August. Manba Finance led with 512 times HNI subscription, followed by KRN Heat Exchanger and Gala Precision, both of which exceeded 400 times. Even Bajaj Housing Finance’s Rs 6,560-crore IPO saw strong HNI interest and the category was subscribed 44 times.

According to investment banker Ravi Sardana, recent IPOs have been priced aggressively in a buoyant market environment. But with the secondary market correction and rising financing costs, HNIs have seen little value left on the table.

Bankers remain optimistic that HNIs will return to primary markets as volatility in the secondary market subsides. “Once greater visibility and predictability on these issues emerge and markets witness several IPOs along with a strong aftermarket, non-institutional demand can be expected to bounce back in a healthy manner,” said Davda of HSBC India.