Dynamics of Retail Investors in Indian IPO Market An Analysis of Factors and Risk Return Scenario

Abstract

Investor segment considered as important pillar of Indian financial system because they provide essential input in terms of capital for financial system so it can finance different economic sector and firms through resource mobilization. In order to make financial system robust, strengthening investor base has been utmost priority for Indian capital market since the inception of Securities Exchange Board of India (SEBI) in 1994. Retail Investor provides domestic support to capital market as it provides risky capital in terms of buffer when foreign institutional investors (FIIs) exit the market in the time of adverse market condition. In IPO market, SEBI has the power to gauge IPO issues based on some predefined criteria and firms has to meet just these criteria in order to list themselves in Indian stock market. SEBI does not evaluate strength of the business model, their ability to sustain in competitive industry so it is important to understand that companies have to meet only certain predefined criteria and it is the responsibility of the retail investors that they invest on the basis of merit assessment of IPOs. So, it is prudent to analyze the dynamics of retail investors in Indian IPO market. Dynamics of retail investor in Indian IPO can be examined with three dimensions which is their decision making, risk return trade off in IPO investment and evaluation of role of securities exchange board of India reforms for the protection of retail investors. newline In present research, exploratory study on a sample of 401 respondent was conducted. Theoretical model of decision making of retail investors was developed using systems approach. Findings of the study depict that SME IPOs is riskier than Mainline IPOs due to low risk-return trade off in SME IPOs. Results of qualitative analysis shows that sentiments of retail investors are positive as far as SEBI s effort to safeguard the retail investors is concerned. Findings of qualitative study is supported by results of hypothesis testing where significant impact of SEBI reform on retail investor protection has been observed. newline newline