Mumbai: Investors are becoming more discerning. Reputation and footing of companies are prime on their minds when investing in new firms, if subscription figures of the recent initial public offers (IPO) are any indication.
Plus stories about IPO irregularities and rigging prices post-listing also weigh on their investment decisions.
“Investors pick up shares of companies that are well known and the issues that have institutional backing,” says Arun Kejriwal of advisory firm KRIS.
“This is a new trend that has emerged. They don’t touch unknown issues even if they are good,” he says.
Media stocks are well fancied, yet two issues from the same category got different response. While Global Broadcast News was oversubscribed 48 times, Broadcast Initiatives managed just 2.76 times subscription.
Corporate governance is a serious issue in an IPO, and investors give excellent rating to issues that fulfill governance parameters, says B. Madhuparasad, vice-chairman, Keynote Corporate Services.
MindTree Consulting and Firstsource got thumbs up from the investors on this factor, he adds. MindTree had a record oversubscription figure of 103 times.
The issues of Idea Cellular and Power Finance Corporation got a phenomenal response due to their pedigree and performance outlook, while issues such as Indus Fila, Vijayeswari Textiles, Oriental Trimex, to name a few, just scraped through.
Institutional investors get to know the company better as they have an opportunity to interact with the management, and they reject issues if they are not convinced, an opportunity that retail investors do not have. “High net worth investors lose money in more issues than what they make, yet we do not know why they apply,” says Kejriwal.
Retail investors are keeping away, and after the Securities and Exchange Board of India’s action against certain IPO participants, people will think twice before funding in them, says an investment consultant.
Merchant bankers should look at the appraisal route and go for pre-selling of IPOs rather than wait till book building, says Madhuprasad.
Pricing should be more realistic and that will drive subscriptions and the post-listing price, say both Madhuprasad and Kejriwal.
A case in instance, they say, is Akruti Nirman, which priced the share aggressively. It touched a high of Rs729 on the second day of listing and now trades at an average price of Rs418 against the issue price of Rs540.
“Parsvnath and Sobha both belong to the same category. While the former has dipped below the issue prices on several occasions, Sobha has been hovering above the issueprice. This shows the difference between two issues,” says Kejriwal.