With back to back record for the highest applicants of IPO, Jyoti Life Insurance currently sets the highest record of IPO applicants. The company had issued a total of 59,40,000 units for the public of which it received the application of 3,80,57,710 units which is 6.4 times more than the number of shares issued for the public. This is the highest number of applicants ever recorded for a single IPO issue. This leads to the question of why the IPO craze is increasing in Nepal?
For the past few months, The craze for IPO is increasing rapidly. The demat accounts have risen rapidly. Till last year only around 24 lakh, people had Demat accounts. But within a year, the demat accounts have increased to more than 30 lakhs. According to CDS and Clearing Ltd, 72,011 people have opened demat accounts in the last week with an average of 10,000 demat accounts per day.
But, why there is a sudden rise in interest for the share market? Here are a few reasons why IPO craze is increasing in Nepal:
1. Online Share Transactions
Gone are those days, you needed to stand in lines just to apply for a share you don’t even know will be allocated to you. The share transaction has become much easier as you can easily apply the share online from your home through Mero share. NEPSE officially had launched its online trading system back in 2018 but people were used to going to brokers to trade and most were not even aware of it. But the Covid 19 made the people do transactions from the home. This meant anyone could do share transactions from home easily without the need to go-to broker. This encouraged people and the share market were accessible by anyone with access to the internet. The convenience of share applications is one of the main reasons behind the IPO craze.
2. Micro Investments
Anyone with one thousand can apply for IPO. The micro-investments also helped the micro investor to invest in the shares market. Before the shares were allocated on the basis of how much one can apply and most of the micro investors were left empty-handed. Considering this, the concept of micro-investment was introduced as of which the probability of getting the IPO for the one who applies for 10 units or 1000 units is the same. It’s not like you invested a lot so you have a high chance of getting the IPO. So, basically, if you have one thousand, you can apply 10 units of shares for IPO and the best thing is you have the chance to be allocated the 10 units you applied for.
3. Social media trend
Well, Social media added fuel to the increasing IPO craze. Anyone who has no idea about IPO or Shares is also applying for the IPO to follow the trend. Social media is responsible for the trends and it’s no joke that the IPO trend also started from there. With the memes about the share market, people are following the trend. While some people are serious about their investments, most of the investors are trend followers who are applying for IPO just for the trend. Once the trend withers away, these trend followers would also stop investing in the IPO and there would be a rapid decrease in IPO applicants as well. It is just a matter of time till the IPO trend is still there.
4. Low Bank Rates
The rates in bank rate have dropped significantly. The bank rates hit the lowest with the saving account rate around 2% and the fixed deposit rate around 7%. The rate that used to be in a saving account now is the rate of fixed deposit. This has diverted the investment of the people as people realized that there is no much profit on keeping the money in the bank. So, why not invest in the share market? The share market can give you a return in 10 days on what the bank would give you in 1 month. This diverted the people’s attention toward the share market and the IPO in general.
5. Guaranteed Profit
People realized that there is guaranteed profit in IPO. You’d buy the share at Rs 100 and if it only trades at Rs 200 only, you already have Rs 100 profit. That’s a fair deal. The primary market is safe and guaranteed investment. So, why not go for it? It is a lucrative investment opportunity for the people and that’s why people are drawn to the IPO. There is nothing to lose and if you get the share, there is guaranteed profit.
It was predicted that due to Covid-19, the amount and volume of remittance would significantly decrease but the opposite happened. It increased rapidly which the banks presumed is that people who used to send the money through informal channels also started to send the money through formal channels. Due to covid-19, hundi stopped and people had to send through formal channels. The money that came in through these formal channels had to be invested somewhere other than the black market. With nowhere to invest, as times are uncertain, most have jumped to the stock market.
What are your thoughts on why the IPO craze is increasing in Nepal? Comment down below.