One Factor That May Cap Zomato’s Listing Premium

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For every share that Zomato Ltd. offered in its initial public offering, the food delivery company received demand for more than 40. A stellar subscription number by all counts. Yet, it masks the below-trend response from wealthy investors. Something that could cap the listing premium for India’s first unicorn to go public.

Zomato’s Rs 9,375-crore share sale garnered subscription for shares worth more than Rs 2.09 lakh crore by the time it closed on Friday. The portion earmarked for non-institutions, including high-new-worth investors, portfolio managers and alternate investment funds, was subscribed nearly 35 times.

Not bad, some would say. But appears muted given that it’s the first of the large Indian internet companies going public. Demand from non-institutions also pales when compared to how this category bid in the two successful IPOs preceding Zomato’s. Shares set aside for this cohort were subscribed more than 200 times in the offers by GR Infraprojects Ltd. and Clean Science and Technology Ltd. Tatva Chintan Pharma Chem Ltd. saw its IPO subscribed 182 times, while the non-institutional allocation was subscribed 517 times.

While institutions do not speculate and the retail category is not big enough to drive IPO pricing, the non-institutional category including wealthy investors, portfolio managers and other funds largely invest for listing-day gains. As a result, this group partly influences the performance on the first day of trading after an IPO.

And the listing price is influenced by:

  • The lot size or the minimum number of shares an investor can buy in a single transaction.

  • Cost of financing or interest on money borrowed to buy shares.

  • The duration for which the money is borrowed.

  • Subscription of the non-institutional portion.

  • Market sentiment that determines the grey market premium over and above the cost of financing.

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