Ahead of the Rs 16,500 crore initial public offer (IPO) of Coal India, investors are already losing money in the primary market. Five of the last nine IPOs that hit the market, in the past two weeks, listed at a price lower than their issue price. Moreover, the stocks continue to languish. BS Transcomm, which had received a subscription of only 57%, had to lower the price band from Rs 257-266 to Rs 248?257. Besides, the Rs 200 crore-IPO, being manged by JM Financial, and was supposed to close on October 9 has been extended till October 13, 2010. Stocks that are trading below their IPO price include Ramky Infrastructure, which is trading 14% below the IPO price of 450. The issue was managed by Deutsche Bank and Enam Securities.
IPOs have seen a mixed response over the past month or so with day one returns ranging from minus15% to 103%. This is unlike the trend seen in July and August when all companies listed at a premium. Clearly, not all IPOs are doing well post listing despite there being abundant liquidity and that could be because they are aggressively priced. ?There is a tendency to price IPOs at higher valuations during bull markets but we have not reached that stage as of now,? said S Ramesh, chief operating office, Kotak Mahindra Capital.
But not every issue is seing strong retail participation. Even the Oberoi Realty issue, which was oversubscribed 12 times, failed to attract the full quota reserved for retail investors, while Orient Green Power attracted subscriptions for just 18% of the shares reservered for retail investors. ? We have still not reached that stage in primary market where every IPO sells like hot cakes. Investors are selectively choosing companies in terms of their track record and other credentials,? said Prithvi Haldea, CMD, Prime Database. ?Investors still are cautious while investing in IPOs, unlike in 2007 when every IPO was a sellout.?
Investor Rakesh Jhunjhunwala, recently warned retail investors from participating in IPOs. ?I don?t think the IPOs are one of the best place to participate. There are lots of listed stocks at much cheaper valuations and are much better companies than these IPOs,? he said. Even the market regulator expressed concerns on the negative returns given by some of the IPOs in recent years. At the AMBI conference held recently in Mumbai, Sebi urged merchant bankers to price the issues appropriately by leaving some gains on the table for investors.