Institutional investors lukewarm to initial public offerings

Institutional investors lukewarm to initial public offerings
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First Published: Tue, Feb 05 2008. 11 46 PM IST
Updated: Tue, Feb 05 2008. 11 46 PM IST
Mumbai: Leo D’Souza, a Mumbai-based marine engineer, had set some money aside to invest in the public issue of one of the infrastructure firms whose initial public offering (IPO) of shares is currently open. But with 40% of his investment in the market wiped out in January’s market crash, D’Souza is now reluctant to invest in any IPO. “Earlier, I felt there was money to be made on listing with new issues,” he said. “Now, I am not so sure.”
That’s the sort of sentiment that is keeping not just retail investors like D’Souza, but also institutional investors away from IPOs.
Reliance Power Ltd’s Rs11,500 crore offering was subscribed 73 times and Future Capital Holdings Ltd’s Rs490 crore issue, 133 times in January. Since then, the Bombay Stock Exchange’s benchmark index, Sensex, has fallen 12%; it closed at 18,663.16 on Tuesday. Meanwhile IPOs have found the going difficult.
While real estate developer Emaar MGF Land Ltd slashed its price band to Rs540-590 from Rs610-690, Wockhardt Hospitals Ltd not only cut the price band from Rs280-310 to Rs225-260, but also extended the share sale by two days. Still, only 1.04% of the issue, which will close on Friday, was subscribed by Tuesday evening. There was no institutional investment in the stock at all.
“What we saw last month was an aberration. It signified tthe IPO market had peaked,” said Devina Mehra, managing director at First Global Ltd, a Mumbai-based brokerage.
Emaar’s issue, which closes on Wednesday, was 40% subscribed on Tuesday evening. Institutional investors had bid for 38% of the 60 million shares reserved for them.
A public issue gets scrapped if any of the shares reserved for institutional investors remain unsold. However, if shares reserved for retail investors are unsold, they can be allotted to institutional investors, provided they have bid for them.
“A lot of foreign investors, who would have invested in these issues, are facing pressures abroad. So, they have held back on subscribing to these,” said Sriram Iyer, head of research at Edelweiss Securities Ltd, referring to the credit crunch in the US market that triggered a two-stage 125 basis points rate cut by the US Federal Reserve in one week.
Investments by foreign institutional investors (FIIs) in the stock market have come down by $3.65 billion till Tuesday, from 10 January, when the Sensex was at a historic high of 21,206.77. FIIs invested $17.36 billion in equities in 2007.
Trading volume is down by one-third since the markets corrected. “No one is clear about the direction the market will take,” said Rahul Rege, chief executive (retail) at Centrum Broking Pvt. Ltd, a Mumbai-based brokerage. “People have?lost?a?lot?of money and are bound to be overcautious and lose out of some good issues.”
However, even as the markets stabilize, analysts expect interest in IPOs to pick up. IRB Infrastructure Ltd’s IPO, which closed on Tuesday, was subscribed 4.29 times .
Still, the IPO boom may be over, said Mehra. “I remember one of the fund managers in an earlier IPO boom telling me he was not investing in the company, but in the IPO process. That sort of euphoria maybe behind us again.”
saumya.r@livemint.com
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First Published: Tue, Feb 05 2008. 11 46 PM IST