HDB Financial IPO: Why Institutional Investors Piled In at 55x While Retail Stayed Cautious at 1.4x#

Why Institutional Investors (QIBs) Were Bullish#

• Strong Fundamentals and Parentage: HDB Financial, India’s seventh-largest NBFC with a ₹902.2 billion gross loan book as of March 31, 2024, benefits from HDFC Bank’s extensive distribution network and brand strength. Its 24% AUM CAGR (FY23–FY25), 2.2% return on assets, and 14.7% return on equity (ROE) signal robust growth and profitability, appealing to institutional investors like foreign funds and mutual funds.
• Diversified Portfolio: Operating across Enterprise Lending, Asset Finance, and Consumer Finance, HDB serves underserved and unbanked customers in Tier 2–4 cities, leveraging a “phygital” model (physical + digital). This diversified, scalable business model reassured QIBs of long-term growth potential.
• Valuation Appeal for Long-Term Investors: Priced at 3.7x FY25 projected book value, HDB’s valuation is competitive compared to peers like Cholamandalam (5.5x) and Shriram Finance, though lower than Bajaj Finance (5.9x). Analysts, including Mirae Asset Capital Markets, noted that HDB’s asset quality and parentage justify its pricing, with potential for sustained growth.
• Market Recovery Sentiment: The Nifty 50’s rebound to within 2.4% of its 2024 highs, driven by easing US-China trade tensions and Middle East geopolitical concerns, boosted institutional confidence in India’s financial sector, particularly NBFCs. QIBs, including 141 anchor investors who raised ₹3,369 crore at ₹740 per share, saw HDB as a bellwether for future NBFC listings.

Why Retail Investors Held Back#

• Valuation Concerns: Retail investors found HDB’s 3.7x price-to-book valuation less compelling compared to peers like Bajaj Finance, which commands a premium due to its higher 22% ROE. The 80% offer-for-sale (OFS) component (₹10,000 crore) versus ₹2,500 crore fresh issue raised concerns about limited capital for growth, dampening retail enthusiasm.
• Past IPO Disappointments: Memories of high-profile IPO underperformances, such as LIC and Paytm, fueled retail skepticism toward large issuances. Tarun Singh of Highbrow Securities noted “HDFC Bank stake-sale fatigue” and caution stemming from recent IPO letdowns as key factors.
• Grey Market Premium (GMP) Decline: The GMP fell from ₹74–75 (10%) on Day 1 to ₹59–67 (8–9%) by listing, signaling moderating expectations. Retail investors, often swayed by GMP trends, may have hesitated due to this decline and perceived limited short-term gains.
• Risk Perception: HDB’s 27% exposure to unsecured loans and a 42% cost-to-income ratio raised concerns about risk and efficiency, particularly among retail investors wary of NBFC vulnerabilities in a potential economic slowdown.

Subscription Breakdown#

• Overall: 16.69x (2.177 billion shares bid vs. 130.4 million offered, worth ₹1.61 lakh crore).
• QIBs: 55.47x, driven by global funds, mutual funds, and financial institutions.
• Non-Institutional Investors (NIIs): 9.98x, with high-net-worth individuals bidding strongly.
• Retail: 1.41x, reflecting cautious participation with 3.34 crore shares bid against 5.61 crore reserved.
• Employee Quota: 5.7x, and Shareholder Quota: 4.25x, showing strong internal and HDFC Bank shareholder interest.

Analyst Insights#

• Mirae Asset Capital Markets: “HDB’s valuation is in line with peer averages, and its strong parentage and asset quality performance make it attractively valued for the long term.” Recommended “SUBSCRIBE” with a positive outlook.
• Narendra Solanki, Anand Rathi Shares: “The 55x QIB bid reflects confidence in HDB’s structural advantage, while retail caution mirrors skepticism toward large issuances.”
• Tarun Singh, Highbrow Securities: Predicted a 10–15% listing pop, potentially reviving retail interest if HDB meets its 15%+ AUM growth guidance in FY25.

Grey Market and Listing Expectations#

• GMP: ₹67 as of July 1, 2025, implying a listing price of ~₹807 (9.1% premium over ₹740). The GMP ranged from ₹0 to ₹104.50 during the bidding period, reflecting bullish sentiment despite a late dip.
• Listing Date: July 2, 2025, at 10:00 AM on BSE and NSE. Allotment was finalized on June 30, with shares credited to demat accounts and refunds processed on July 1.

Broader Market Context#

• India’s IPO Market: India’s IPO market raised $5.86 billion in 2025, second globally, with HDB’s IPO being the largest since Hyundai Motor India’s in 2024. The strong QIB response mirrors Zomato’s 2021 IPO (38x subscribed), signaling a recovery from earlier trade war concerns.
• Retail Sentiment: Posts on X highlighted retail caution, with some users noting that a single lot (20 shares, ₹14,800 minimum investment) had a high allotment probability due to low retail bidding, but others warned of risks from high valuations and unsecured loan exposure.

Conclusion#

HDB Financial’s ₹12,500 crore IPO saw fervent QIB demand (55.47x) due to its strong fundamentals, HDFC Bank’s backing, and a recovering market, while retail investors (1.41x) remained cautious over valuation, past IPO disappointments, and risk concerns. With a 9% GMP suggesting modest listing gains, investors should monitor HDB’s post-listing performance and FY25 growth metrics. To check allotment status, visit Link Intime or BSE’s website.