DIIs step up participation in IPOs in 2015
Of the 21 IPOs that have hit markets this year, DIIs bought more than half the anchor book in at least 12
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Mumbai: Domestic institutional investors (DIIs), including mutual funds and insurers, have stepped up their participation in initial share sales and are matching almost every rupee put in by their overseas counterparts.
Of the 21 initial public offerings (IPOs) that have hit the capital markets this year, DIIs bought more than half the anchor book in at least 12, according to data from Prime Database, a firm that tracks the primary market.
The anchor book is that portion of the IPO that bankers can allot to institutional investors on a discretionary basis.
DIIs have invested Rs.1,895.28 crore as anchor investors whereas foreign institutional investors (FIIs) have allocated Rs.1,992.15 crore during the year. That means DIIs bought 49% of the shares sold in IPOs.
The numbers have been skewed by the IPO of InterGlobe Aviation Ltd, the parent firm of the airline IndiGo, in which FIIs picked up 84% of the anchor book.
If IndiGo is excluded, DIIs have picked up 58% of IPO issuances this year as anchor investors.
In 2010, when 64 companies hit the markets, around 44% of the anchor book had gone to domestic investors.
Anchor-book subscription opens a day before the launch of an IPO and acts as an indicator of institutional investor interest.
“Retail investors have increased their allocations to mutual funds this year and that capital has been allocated by MFs for taking position in these companies. This year we have witnessed a lot of good issues which have managed significant listing gains, propelling higher allocation from MFs and domestic funds,” said Ajay Saraf, executive director at ICICI Securities Ltd.
The net inflow into mutual funds between January and November this year was Rs.97,940 crore—the highest amount raised by mutual funds in a decade. Retail investors have come back to the equity markets and other financial savings instruments following a decline in the rate of return offered by physical assets such as real estate and gold.
While retail investors have not been active in subscribing to IPOs directly, money has come in via mutual funds. These funds have been encouraged by the good returns given by IPOs this year.
Over 10 companies have managed to return between 12% and 99% since the listing of their shares. Logistics firm VRL Logistics Ltd, backed by private equity fund New Silk Route, has seen its share price almost double since its listing on 30 April.
Capital raising by companies this year hasn’t been very large compared with the heydays of 2010, said an investment banker with a foreign bank who requested anonymity.
Twenty-one companies have managed to sell shares worth nearly Rs.14,000 crore through IPOs this year—the highest since 2010 when 64 companies raised Rs.37,534 crore.
“But until 2010, 60-70% of anchor portion used to be the global book. That has reduced significantly,” this person said.
This person added that the prevailing negative mood around emerging markets and outflows from emerging market funds have played a role in lower allocations from FIIs.
To be sure, foreign investor participation could pick up in 2016 when the primary markets are expected to remain active. More than 30 firms have filed IPO papers with the capital market regulator this year and most will hit the markets next year.
“FIIs have been sceptical about Indian equities but now there is clarity on interest rate hike by the US Federal Reserve; thus we will see more participation from them going forward. Also, FIIs do not participate in smaller issuances as they allocate a larger pool of capital and we are witnessing them come back over the last few issuances,” said Harish H.V., a partner at Grant Thornton India Llp.
Among the issues this year, foreign investors were active participants in share sales by InterGlobe Aviation, MEP Infrastructure Developers Ltd, SH Kelkar and Co. Ltd and Coffee Day Enterprises Ltd, among others. In InterGlobe Aviation alone, FIIs invested Rs.700 crore of the total anchor book of Rs.832 crore.
In addition, recent issues have also seen interest from sovereign wealth funds and pension funds. The government of Singapore through its investment fund, the Abu Dhabi Investment Authority, Kuwait Investment Authority and Alberta Teachers’ Retirement Fund Board are some long-term investors that have started cherry-picking in recent IPOs.
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