Mutual Fund IPOs anchor bigger than FPIs for a second year in a row- QHN

Mutual funds (MFs) are likely to surpass foreign portfolio investors (FPIs) in terms of anchor investments in initial public offerings (IPOs) for the second consecutive year. In calendar year 2023 so far, MFs have invested Rs 5,577 crore as anchor investors, compared to the Rs 5,417 crore invested by FPIs this year.

In 2022, MFs put in Rs 9,026 crore as anchor investment, 21 per cent higher than the FPI tally of Rs 7,105 crore. This marked the first time since 2014 that MFs had outpaced FPIs in anchor investments.

Similar to secondary markets, MFs have assumed a bigger role in the anchor book as well as the main book for IPOs amid rising inflows into equity schemes. MFs have outpaced FPIs in terms of equity market deployment for two straight years.

“The current equity-oriented domestic MF assets under management are worth Rs 27 trillion. This is driving strong domestic participation not just in IPOs but also in other equity offerings such as blocks and qualified institutional placements. In 2023, on average, 65 per cent of the anchor book was covered by domestic institutions,” said Nipun Goel, head-investment banking, IIFL Securities.

MFs made a net equity purchase of Rs 1.85 trillion in 2022, while their total deployment stands at Rs 1.55 trillion in 2023 so far. In comparison, MFs were net sellers of stocks worth Rs 1.25 trillion in 2022 and have invested Rs 1.37 trillion this year.

“The strong flows into domestic funds have added resilience to Indian markets. In previous cycles, it was said that ‘If the New York Stock Exchange sneezes, the Indian market catches a cold’. That is not true anymore, and Indian markets have remained strong even in periods where FPI flows were negative,” said Raj Balakrishnan, co-head, India investment banking, Bank of America India (Bofa India).

Anchor investors, also referred to as cornerstone investors in some global markets, are institutional investors who are allotted shares a day before the IPO opens. Big investor names subscribing to shares in the anchor book help instil confidence among retail investors, who typically take cues from others.

The anchor investments, both by MFs and FPIs, have declined year-on-year despite a similar number of issuances. The dip can be attributed to the biggest-ever IPO brought by Life Insurance Corporation (LIC) of India in 2022.

The insurer alone received 48 per cent of the total anchor money in 2022 at Rs 4,355 crore. If LIC is excluded, this year’s IPO anchor book is 19 per cent higher than that of 2022, according to data from PRIME Database.

The lower anchor investments by FPIs compared to MFs can also be attributed to a decline in the average IPO size, say experts. The average size of IPOs in 2023 is Rs 1,078 crore. FPIs tend to miss smaller IPOs due to liquidity concerns.

Among fund houses, ICICI Prudential MF invested the highest amount at Rs 801 crore, followed by Nippon India (Rs 556 crore) and HDFC (Rs 556 crore) in the anchor book this year.