scorecardresearchCan anchor investors help you decide which stocks to buy?

Can anchor investors help you decide which stocks to buy?

Updated: 12 Jul 2022, 04:43 PM IST
TL;DR.

Anchor investors are qualified institutional investors who purchase shares a day before the IPO opens. To know more about how they affect the price of the stocks, continue reading.

The concept of an anchor investor was introduced by the Securities Exchange Board of India (SEBI) in 2009.

The concept of an anchor investor was introduced by the Securities Exchange Board of India (SEBI) in 2009.

Anchor investors, often referred to as cornerstone investors in various foreign markets, are qualified institutional investors who purchase shares a day before the IPO opens. The concept of an anchor investor was introduced by the Securities Exchange Board of India (SEBI) in 2009.

By committing to purchase shares at a certain price, they are meant to 'anchor' the issue and boost retail investors' confidence in the demand for the shares being offered. They serve as a link between the retail investors and the issuing corporation.

How do anchor investors affect the price of the stocks?

Each anchor investor is required to invest at least 10 crores to the offering and purchase shares at a price set by the firm. This boosts a retail investor's faith in the shares' demand. Additionally, the existence of anchor investors reinforces retail investors' confidence in the IPO's quality. On the other hand, if anchor demand is low, it may have an effect on the IPO's total subscription.

Anchor investors can apply for an IPO with a 25 percent margin of their application. The remaining sum is settled within two days of the issue's conclusion. The issue price is then established in accordance with the book building process. Anchor investors are in charge of closing the gap if their price is less than the set price. However, anchor investors will need to bring the additional money if the price is greater.

They are subject to a lock-in term and may only sell their shares 30 days following the allotment. Before releasing the issue, the corporation must publicly disclose the information about the anchor investors through BSE notices and NSE circulars.

It should be noted that if the offer is smaller than Rs. 250 crores, a minimum of 15 anchor investors may participate. However, the number of anchor investors might be extended to 25 if the offer amount exceeds 250 crores.

There is no denying the importance of anchor investors in fostering general investors' trust in an IPO. But it's also important to keep in mind that anchor investors have their own logic, time horizon, and investment goals as other investors.

Therefore, as a typical investor, you may only use the anchor investment as a point of reference when considering investments. Your ultimate choice must be based on your own risk tolerance, return expectations, and time horizon.
 

First Published: 12 Jul 2022, 04:43 PM IST