The Hindu Business Line : Do the markets have the stomach for IPO feast?<br> Yes, say lead managers

Ten offers are expected to mobilise about Rs 15,000 crore. Investors have a large spread to choose from. But would the bunching up of so many offers in a short span affect the subscription prospects of these offers?

Ask lead managers and they remain unruffled. They are confident of a strong response to the offer of sale of shares by the Government and the other initial public offers. Lead managers don't think it is necessary to reduce the offer price to make them attractive.

Top investment bankers such as Mr Ajay Sondhi, Kotak Mahindra Capital Company, Vice-Chairman and Managing Director, Kotak Mahindra Capital Company, and Ms Naina Lal Kidwai, Vice-Chairman and Managing Director, HSBC Securities and Capital Markets, expect strong response from both institutional and domestic investors.

Ms Kidwai said that HSBC had met with about 100 institutional investors abroad in road shows and their response was encouraging.

No impact on IPOs

Lead managers expect the IPOs of Power Trading Corporation, Biocon and Petronet LNG to sail through, without being affected by the offers for sale by the Government. Mr Sondhi said, "There is a lot of money in the market."

The companies themselves aren't worried. For instance, Ms Kiran Mazumdar Shaw, Chairman and Managing Director, Biocon India, said that Biocon would be able to realise their value expectations. Translated, that means Biocon will get the price that it wants. She added that Biocon is a differentiated stock and the pre-marketing feedback is positive both within India and overseas.

Flow of money

Where is the subscription money likely to come from? Ms Kidwai said that conversion of only one per cent of the term deposits is enough to ensure subscription to these offers.

Mr Sondhi said that apart from fresh inflows from overseas investors, allocation from fixed income to equity is conceivable. Households have about Rs 1,30,000 crore in bank deposits and assets under mutual fund income schemes are about Rs 71,000 crore.

Mutual funds are expected to participate in these offers too. According to Mr S.V. Prasad, Chief Executive Officer, Birla Sunlife Asset Management, mutual funds may invest between Rs 2,000 crore to Rs 2,500 crore in these offers.

Mr Prasad, however, indicated that there is no redemption pressure on equity mutual funds. Net inflows continue to be steady, he added.

Churning of the secondary market holdings is also conceivable, according to Mr Sondhi. Analysis by Business Line suggest that FIIs, public, private corporate bodies and mutual funds cumulatively held equities worth about Rs 3,08,000 crore at the end of December 2003.

Retail investor participation

Lead managers though are keeping a wary eye on the level of retail investor participation.

The rapid succession of offers would restrict individual investor participation to only a few offers. (It takes 15 to 30 days to get back the money invested in an offer.) Mr Sondhi felt that investors will not be able to churn the money and would have to be choosy. He, however, felt that this would not be a serious impediment to the success of the offers or the participation of retail investors. He expected new investors to come into the market, as had happened in the case of the Maruti Suzuki IPO.

Mr Prasad too anticipated strong participation by retail investors because investors had made money in IPOs in 2003. He, however, suggested that the extent of oversubscription and the premium in the secondary market would not be as high as in the case of offers in 2003. That is a useful statutory warning for the retail investor.