IPOs – MAKING THE SMART CHOICE

By Ruma Dubey

Whew! The NTPC FPO finally made it to the finishing line. Going by the response it had received, or rather lack of response, there was worry. The fact that it managed to get the issue subscribed 1.2 times was good but not really good enough.

The allotment of NTPC shows that retail investors have steered clear from the issue except for the brave hearted few. It was once again thanks to the QIBs that the issue sailed through, they subscribed 2.18 times but retail response was pathetic at 1.2 times.

Over the past few months, it has been seen that retail investors have developed a kind of allergy to IPOs, especially in issues that are huge. Take the case of JSW Energy, the issue had retail subscription of just 0.40 times; DB Realty saw 0.36 times and Godrej Properties was at 0.37 times.

Another trend which we see emerging is that the subscription by Non-Institutional Investors (NIIs) is almost equal or much more than Qualified Institutional Buyers (QIBs). This is the trend seen in most of the issues, which opened in 2010. For eg: Infinite Computer saw QIBs at 48.44 times which NIIs at 106.02 times; Birla Shloka had no QIBs, it was only NIIs to the tune of 5.45 times, Jubilant Foods had QIBs of 59.39 times while NIIs at 51.95 times; Syncom Health saw QIBs at 0.99 times and NIIs at 16.60 times; Aqua Logistics QIBs at 0.26 times and NIIs at 5.07 times; Emmbi Polyarns QIBs at 0.43 times and NIIs at 5.55 times. In IPOs like Godrej Properties, DB Corp, JSW Energy and even MBL Infra, QIBs subscribed more than NIIs.

QIBs are typically institutions that manage at least $100 million in securities including banks, savings and loans institutions, insurance companies, investment companies, employee benefit plans, or an entity owned entirely by qualified investors. Also included are registered broker-dealers owning and investing, on a discretionary basis, $10 million in securities of non-affiliates. And NIIs are those who are not an institution. This would usually include High Networth Individuals (HNIs) as there is a separate category for small investors like you and me under ‘Retail Investor’.

So what does this trend indicate?  Now that the markets have gone into a correction mode, QIBs do not want to take the risk and thus prefer to stay away though they continue to bank with PSU IPOs which the retail investor and NIIs do not find too attractive. NIIs are now the new help lines for managements of these companies – they come in to rescue when the water threatens to drown the IPOs. Be assured that when the market picks up, QIBs will be back, backing IPOs. They are the fair weather friends.

The last huge retail participation was seen in the IPO of Infinite Computer, which saw their participation to the tune of 11.08 times. And another company, Syncom Health also managed to see some better response at 6.25 times. Retail investors are there, very much there but they seem to have got picky and choosy. Analysis of the statistics given below shows that they seem to now issues which are neither into power or realty. These seem to have reached a point of ad nauseum with the retail investors. Instead they are not averse to issues from IT, food, health, logistics and even jewellery.

One who burns his tongue while sipping hot milk, tends to then even blow cool air while sipping ice cold buttermilk. That’s the case with retail investors. They have learnt that it is better to be cautious than run after profits, which does not happen. Certainly a smart move.