The mood in the primary market is upbeat with the two recent initial public offerings (IPOs)?Hindustan Media Ventures and Technofab Engineering ?having seen bumper listings.
Nevertheless, the track record of both IPOs and QIPs (qualified institutional placements), which hit the market this year, remains full of blemishes. Despite the BSE Sensex scaling a 29-month high, more than half of the 29 IPOs are trading below their offer price while many of the investors are running out of money. Of the 41 rights, QIPs and follow-on issues that hit the market between January 2010 and July, about a third are still trading at below their offer prices.
So far this year, India Inc has raised about $12.5 billion, and an additional $25 billion worth of paper is expected to come into the market over the next six months, including disinvestments by PSUs.
However, with Hindustan Media listing at a premium, to the offer price, of 15% and Technofab gaining 28% on the day it was listed, investment bankers believe the next couple of IPOs should go through more easily. The latest IPO, Midfield Industries, which closed on July 21, was subscribed nearly 13 times. Most of these IPOs, whatsoever, have been small in size -Hindustan Media raised Rs 270 crore whereas SKS Microfinance and Engineers India will be hitting the market later this month with each aiming at around Rs 1,000 crore each.
With institutional investors bullish on the Indian markets, QIPs have had little trouble finding buyers, point out investment bankers. The recently concluded QIP of Adani Enterprises for Rs 4,000 crore found enough takers. However, as Kotak Mahindra Capital chief operating officer S Ramesh points out, retail investors were reluctant participants in the primary markets in the past. As such, merchant bankers say for an issue like EIL to be successful, the government may need to offer small investors a good discount, of as much as 10-15%, to the ruling market price of Rs 338.
It may be recalled that despite NMDC offering a 5% discount, only 0.21 % of the retail quota was subscribed to. The government hopes to raise RS 40,000 crore through disinvestments in 2010-11 by selling shares in companies such as Coal India, SAIL and Indian Oil. Ramesh also believes the days of huge over-subscriptions are over.