Why are foreign investors actively participating in the anchor round of investing in IPOs?

The News

In 2024, Indian IPOs saw a record ₹45,650 crore in anchor investments from institutional investors so far. It was led by Foreign Institutional Investors (FIIs), contributing about ₹25300 crore.

This marks the highest level of FII participation since 2021, when their investments exceeded ₹29,000 crore.

Bigger IPOs such as Hyundai Motors India, Swiggy, NTPC Green Energy, and Ola Electric Mobility attracted significant anchor investments.

Before we go ahead, let’s quickly understand what is anchor investing and how it helps IPOs float smoothly.

💡 Anchor Investing

Anchor investing refers to the process where institutional investors are invited to buy shares in an IPO before it opens to the public. This helps create confidence and attracts more investors.

Anchor investors also have a lock-in period. During this time, they cannot sell their allocated shares. This lock-in ensures stability in the stock’s initial trading phase.

The lock-in period for anchor investors in India is 30 days for 50% of the shares and 90 days for the remaining 50%.

There have been 84 IPOs so far in 2024, collectively raising ₹1.73 lakh crore, the highest ever for a calendar year. Globally, India led the IPO market, with one out of every three IPOs coming from India.

India is seeing a boom majorly because of strong economic growth and improved rules by the SEBI, making the IPO process smoother for startups that are currently not generating profits.

Another key driver is the rise in retail participation, which is increasing demand for new public offerings. These factors are creating favourable conditions for companies to go public.

So institutional investors are also rushing up to capture their share of the trend by actively participating in anchor round of IPOs.

What happens at the end of lock-in period?

On December 12th, the 90-day anchor lock-in period for the Bajaj Housing Finance IPO ended. The stock price went down by over 6%, as anchor investors rushed to sell shares and book profits.

Another example is Ola Electric, where share price dropped by over 8% because of the same reason as the lock-in period for anchor investors ended on 5th November.

While record-breaking anchor investments point to a promising future for India’s IPO market, retail investors should approach it with a bit of caution.

These recent events highlight the volatility in the secondary market when the lock-in period of anchor investors ends.

To Conclude

While India’s IPO market holds promise, retail investors should carefully assess the fundamentals of each IPO, keeping in mind the potential risks once the lock-in period ends and as market conditions evolve.