Ahmedabad: The Rs11,700 crore Reliance Power Ltd’s initial public offering (IPO), which is to open on 15 January, appears to have had an impact on the opening of new dematerialized, or demat, accounts in Gujarat.
Such accounts are needed to buy or sell stocks and electronically hold an investor’s stocks.
“Till about a fortnight ago, we used to get about 10 requests daily for opening demat accounts. Ever since Reliance Power has announced its IPO, at least 100 people every day want to open demat accounts,” claims Nilesh Kotak of Ahmedabad-based Dhanvarsha Finvest, a small sub-brokerage and investment advisory firm, and a franchisee for broking house Khandwala Securities Ltd.
Wealth-conscious: A file photo of a ceremony when Gujarat’s mercantile community opens ledgers and new account books. Anil Ambani says at least two million of investors in his group companies are from this state.
Kotak is not alone. Anagram Securities Ltd director V.K. Sharma, too, says many people want to open demat accounts ahead of the IPO. “I have received phone calls from people who had never subscribed to any public float,” he says.
Estimates vary but some brokers here claim 100,000 new demat accounts have been opened in the past fortnight alone.
Mint couldn’t independently confirm such claims. Nationally, the Central Depository Services Ltd (CDSL) has added nearly 80,000 demat accounts since 1 January. According to the data on its website, the total number of demat accounts held at the depository has gone up from 3.57 million as on 31 December to 3.65 million by 7 January. It is unclear how many of these might have been in Ahmedabad or Gujarat, traditionally a centre for trading in IPOs by small investors.
Investors in Gujarat have been in the forefront when it comes to opening demat accounts. In the past year, they opened 23% more demat accounts with two depositories—National Securities Depository Ltd and CDSL—and Gujarat accounts for about 15% of the total 11.5 million demat accounts in India.
Anil Ambani, chairman and managing director of Reliance Anil Dhirubhai Ambani Group, which owns Reliance Power, said in an Ahmedabad roadshow to market the IPO that at least two million of the total seven million investors in his group firms are from Gujarat.
“Expecting a surge in demand, we started distributing forms for demat accounts from some time back as we were aware that Ahmedabad will be on a holiday to celebrate kite-flying during the Makar Sankranti festival on the weekend beginning 12 January,” says an official in the local office of a Mumbai-based brokerage.
It takes a few days to open a new demat account because firms are required to do client verification under the “know your customer” norms. “With such a rush, it could take anywhere between 12 and 15 days,” the Mumbai broker says.
Purvin Patel, a long-time investor in the stock markets, wants to open three more demat accounts in names of his family members. “I want to invest as much as possible in this issue,” Patel says. Rajesh Shah, a businessman, too is opening demant accounts for his family members to apply for more shares. “I have opened an account for my wife, both my kids and my younger brother,” says Shah.
Under the Securities and Exchange Board of India norms, retail investors are assured of 30-35% of stocks that are sold in the market but often, large public issues generate a huge response from retail investors and, as a result, individuals might not receive as many shares as they apply for.
Meanwhile, the “rental” fees for an existing demat account in the city’s grey market, which normally runs at Rs200-500 depending on the IPO, have gone up to Rs2,500 per account for the Reliance IPO. In recent months, Mundra Port and SEZ Ltd’s IPO, which was oversubscribed multiple times, saw rentals for demat accounts reaching Rs1,500 for an account.
The grey market, or koshtak, is an illegal market where applicants rent out their permanent account numbers and demat accounts for a fee. These applicants subscribe to IPOs but, even before the shares are allotted, hand over signed delivery instruction slips to the brokers with whom they had first struck the deal. Once the shares are allotted, the brokers transfer the shares to their own accounts, turning the legitimate demat account holders into middlemen who get a fixed fees.
The premium for the Reliance IPO, which has a price band of Rs405-450 a share, was ruling at Rs370-375 per share in the grey market on Wednesday, down from Rs440-450 on 7 January. Meaning, investors expect the shares to potentially trade as high as Rs825 a share. The grey market premium, many believe, is an indication of the performance of a stock on bourses and a guide for retail investors on which stock to apply for. However, signals from this market are not always correct.
For instance, the grey market premium on realty giant DLF Ltd’s shares was Rs30-40 a share, indicating a lack of confidence in the prospects of the issue. However, the DLF issue, priced at Rs525, got listed at Rs570.05 on 5 July and since then, it has risen by more than 105%. It closed Wednesday at Rs1,168.85 a share on the Bombay Stock Exchange.
Rachna Monga contributed to this story.