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Mumbai: Eighty per cent of the initial public offerings (IPOs) since 2009 have underperformed the market since listing, and almost all of them are trading sharply below their debut price, raising questions over their pricing and marring the track record of the investment banks that handled the first-time share sales.

Of 119 IPOs—excluding eight whose stocks were split later—that have hit the market since 2009, 93 stocks have lagged behind the 30-share Sensex of BSE, when their movement is compared against that of the bellwether index since the day of their debut.

In an effort to help investors make better decisions when paying for IPOs and improving transparency in pricing, bankers were ordered by the Securities and Exchange Board of India (Sebi) in January to disclose their track record.

At present, 59 investment bankers are registered with the Association of Investment Bankers of India (AIBI), the industry body launched in 2010. Of these, at least 52 merchant bankers were engaged in managing 127 IPOs worth 64,114.88 crore since 2009.

With 26, Enam Securities Pvt Ltd handled the maximum number of IPOs. Kotak Mahindra Capital Co. Ltd followed with 23, SBI Capital Markets Ltd with 18, JM Financial Consultants Pvt. Ltd with 15, ICICI Securities Ltd with 14, and IDFC-SSKI Securities Ltd and Edelweiss Capital Ltd with 10 each.

Also See | Scorecard (PDF)

A ranking of the top 21 investment bankers show only six of the 26 IPOs handled by Enam and seven of the 23 managed by Kotak got the pricing right to beat or match the market benchmark since their listing.

SBI Capital Markets scored two out of 18 in terms of performance of IPO stocks vis-à-vis the market bellwether. JM Financial scored two out of 15 on this parameter, ICICI Securities got one out of 14, IDFC-SSKI scored two out of 10 and Edelweiss Capital one out of 10. Morgan Stanley India Co. Pvt. Ltd and IDBI Capital Market Services Ltd, which handled nine IPOs each, got the price right on only three and two instances, respectively. (See table)

“Investors put money on the basis of their perception about the company’s future prospects," said Sanjay Sharma, chairman of AIBI. “Retail investors tend to follow the subscription pattern of institutional investors while investing in IPOs. As long as the buyer and seller agree to a price, the issue pricing looks fine."

Citigroup Global Markets India Pvt. Ltd, Chartered Capital and Investment Ltd, Avendus Capital Pvt. Ltd, Ashika Capital Ltd and Almondz Global Securities Ltd managed six IPOs each. Citigroup scored two, Chartered Capital zero, Avendus one, Ashika got two and Almondz zero.

On the basis of stock performance since listing 2009 onwards, Motilal Oswal Investment Advisors Pvt. Ltd has three out of four issues outperforming the market since listing.

“Investors need to understand that IPOs are the riskiest form of capital market investment," said Prithvi Haldea, chairman and managing director of Prime Database, a New Delhi-based primary market tracker. “Bankers cannot be held responsible for the post-issue performance of a company. Pricing is relevant only on the day of the listing. And, the pricing cannot be compared with either the stocks of peer group companies or their price-to-earnings ratios or that of the respective sectoral index. All companies have their own ways of doing business. "

To ensure that a high price band does not fend off the investor, bankers are appointed to promote the company’s strength through advertisements and road shows before the IPO. Interestingly, the Mint study shows the issues that got the highest subscriptions are among the worst performing stocks in the lot today.

Since 2009, of the 119 IPOs, 97 are currently trading below their listing price.

For instance, shares of Punjab and Sind Bank that were listed at 146.10 through an IPO that was subscribed 50.37 times, now trade 51.75% down at 70.50 a piece as on Friday. The Muthoot Finance Ltd issue that was subscribed 21 times is now trading 31.11% below its listing price.

These two stocks underperformed their relative sectoral index—Bankex of BSE—which lost 12.74% and 9.13%, respectively, from their listing dates.

DQ Entertainment (International) Ltd’s IPO, which got about 70 times subscribed, has its stock trading 84.22% below its listing price. ARSS Infrastructure Projects Ltd had its issue 51 times subscribed, while the stock is 91.25% down now, outperformed even by its relevant index—BSE Capital Goods—that presently trades 31.17% down from the day the stock was listed.

State-run metal producer MOIL Ltd, whose issue got 56 times subscribed, is trading 50.44% down from its listing price, while its benchmark index—BSE Metals—is 37.16% below its level recorded on the day of the stock’s listing.

More recently, IPO of Multi Commodity Exchange of India Ltd which was subscribed about 46 times, has its stock trading 26% below the listing price on the bourses now. Most of the IPO stocks listed since 2009, have underperformed both their sectoral indices and the Sensex.

The market regulator had said: “The track record shall be disclosed for a period of three financial years from the date of listing for each public issue managed by the merchant banker".

The track record will have to be disclosed on the website of the merchant banker and a reference to this effect has to be made in the offer documents of public issues managed in the future.

“The current practice of providing justification of an issue-pricing in the offer document on the basis of past issues is not so relevant," said Sharma of AIBI.

“Qualitative factors justifying the pricing are relevant but they cannot be converted into a right price for the issue, while the quantitative factors mentioned on the basis of historical financial performance of company is not relevant." he said. “Future projection of the issuer company’s business could play a role in justifying the pricing of an issue, but such projections are not allowed to be disclosed in India and also in most of other geographies."

PDFby Ahmed Raza Khan/Mint.

anirudh.l@livemint.com

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