Unpacking retail investor behaviour in Sme Ipos: What fuels the frenzy?

Abstract

Small and Medium Enterprises (SMEs) drive India’s economy, contributing one-third of its GDP. In 2023 alone, SMEs raised over ₹5,500 crore through more than 120 IPOs, fueling growth and competitiveness. Despite extensive research on SME IPO performance, ownership structures, and information asymmetry, researchers have largely overlooked the factors influencing retail subscription in SME IPOs, leaving a critical research gap. This study analyzes the factors that influence retail subscriptions in SME IPOs in India, focusing on issue attributes, subscription rates, and external influences. An analysis was conducted on 506 SME IPOs listed between 2021 and 2024. JMP software was used to evaluate the effects of issue attributes, QIB and NII subscription patterns, and external factors on retail subscription rates. The findings indicate that issue price and issue size negatively impact retail subscriptions, while GMP, NII subscriptions, and QIB subscriptions positively influence them. The model explains 66% of the variance in retail subscriptions, highlighting the importance of market sentiment and institutional participation. The study expands the literature by incorporating a wider range of factors to provide a more comprehensive understanding of SME IPO subscriptions. It emphasizes the need for strategies to attract retail investors by enhancing transparency, improving pricing approaches, and mitigating risks, offering valuable insights for policymakers and market participants.