Let us look at the two biggest IPOs in the week; Meesho and Aequs. In the case of Meesho, the overall IPO got subscribed 79.03 times. The subscriptions were led by QIBs at over 120 times, while the HNI / NII portion got subscribed 38 times and the retail portion got subscribed 19 times. What about Aequs? The overall IPO of Aequs Ltd got subscribed about 102 times at close. The QIB portion again dominated with 121 times subscription. However, the HNI portion at 81 times and the Retail portion at 78 times also saw very impressive subscription numbers. In the case of QIBs and HNIs, the reasons are varied. However, in the case of retail subscriptions, the numbers were substantially better than other IPOs in recent weeks. 

What was different about these two IPOs in the latest week that saw such a revival of interest in retail investors. Generally, the belief is that loss making companies find it difficult to attract retail investors. However, in this case, both Meesho and Aequs have been loss making companies for 3 years in a row. Despite that, the retail investors showed a high level of interest. We can attribute that to the price effect. Meesho was priced at the upper band of ₹111 while Aequs was priced at ₹124. These kinds of prices are seen as affordable by retail investors and attracts added interest. 

The big question is whether investors can truly rely on this kind of low-price effect to decide on IPOs? The answer is an emphatic “NO.” In an IPO, the price in itself is not high or low, but that has to be seen with reference to its earnings. In this case, both the companies had negative earnings and so the presumption was that the downside risk in an IPO priced at around ₹100 is not too high. Also, the price looks retail-friendly as you feel more comfortable paying ₹100 for a stock than paying some fancy price like ₹3,800 per share. It is this notional price fallacy that seems to have driven the retail interest. 

While the price story looks simple and intuitively easy to understand, it has no logical or analytical basis to it. It is like saying that a fund with a NAV of ₹10 is cheaper than a fund with an NAV of ₹75, which is incorrect. For that reason, retail investors also love stock splits as it brings the price within their affordable range. In reality, the wealth impact from a stock split is neutral. This is the kind of lazy analysis that investors need to be cautious about. An IPO does not become cheap just because it is priced at ₹100 or lower. That is just an indicative figure. True value of the IPO is hidden in its business model, its future plans, its moat, and valuations. It is best to focus on these!