IPO (initial public offering) investing, that once spelled ‘instant gains’, has lost its lustre. With a falling market ahead and a generally bearish trend around, investor preference has shifted away from IPOs. Of the three small-sized IPOs that closed for subscription on Tuesday, two — First Winner and Archidply — managed full subscription while Lotus Eye till that time had received subscription for only 61 per cent of its shares (See table).
Blame the secondary market for this slowdown in IPO stakes. “Investor sentiment is low in the secondary market which is resulting in low subscription levels for IPOs,” said S. Ramesh, chief operating officer, Kotak Investment Banking.
Low investor interest in IPOs has continued since the bloodbath in the secondary market on January 21 and 22 that led to the withdrawal of large public issues of Emaar MGF and Wockhardt. The two-day trading sessions on June 9 and June 10 saw the market fall by 4.4 per cent under pressure of rising oil price and accelerating inflation. Under the market pressure that followed the global developments, three IPOs that opened for subscription post June 9 failed to catch investor attention.
Volatility in markets is another reason, experts say. “Many investors subscribe to IPOs for listing gains which exist in a bull market,” said Aseem Dhru, chief executive officer, HDFC Securities. “That incentive is missing in the current market scenario.” The result: low investor interest in the current issues.
To make matters worse, many IPOs over the past one year are now trading below their issue price. These include the three high-profile IPOs of DLF, Reliance Power and Future Capital. “This has led to fall of investor confidence in IPO investing,” added Dhru.
Many blue chip companies that are even part of the Sensex and Nifty 50 are currently trading near their lows in the secondary market and that makes investors biased toward them as compared to a new company that has come with an IPO.
Quality IPOs that investors are looking forward to, however, have kept themselves away from the market in its current state. Jaiprakash Power Ventures, UTI Asset Management, Pipavav Shipyard filed their draft offer documents with Securities and Exchange Board of India in January but have yet not come out with their IPOs. There are many others in line and are waiting for the secondary markets to revive, which then will boost the primary market.
And that’s going to take some time coming.