The Hindu Business Line : IPOs: Many FIIs making quick exit on listing

In a new post-IPO trend, foreign funds are seen to be big sellers of shares of companies - sometimes even at a loss - on the day of IPO listing on stock exchanges, contrary to the belief that foreign funds enter stocks at IPO stage for long-term gains.

According to the data available from stock exchanges, the trend is more visible in public offers of small and mid-cap companies such as Visa Steel, Nitin Spinners, JK Cement, Nitco Tiles and Adhunik Metalics .

For instance, ABN-Amro Bank sold over 9 lakh shares of Visa Steel at Rs 54.92 on the day of listing of the stocks. This is a loss of Rs 2 per share compared to the issue price of Rs 57. BNP Paribas Arbitrage also sold 6.13 lakh shares of Visa Steel on the listing day at a loss of Rs 2 per share. However, most of the first-day sales are at a profit. HSBC Equity Fund, for instance, made a cool profit of over Rs 21 per share on Nitco Tiles on its sale of 1.68 lakh shares. Merrill Lynch and ABN AMRO made profits of over Rs 2 per share when they sold 5.47 lakh and 10.36 lakh shares, respectively of Adhunik Metalics on the listing day of the shares on the bourses. Significantly, the trend was not seen in IPOs such as Suzlon, where analysts bet on long-term benefits of investments.

"It could be possible that promoters' money may be routed through foreign funds to create a hype on the IPOs through over-subscription levels or to ensure that the IPOs are not devolved. This money may be getting out at the time of listing," said an analyst with a leading brokerage house, on condition of anonymity. Another view is that hedge funds, which are known for quick entry and exit in the stock markets, may be entering the stocks during the IPO-stage for making a quick profit at the time of listing.

Mr Sashi Bhushan, Head (Western region), IL&FS Investmart, said the liberal pricing of the IPOs may be forcing some FIIs to act desperately on the listing day. Another reasonis that some foreign funds would not like to hold on to a particular stock if they do not get a "pre-defined quantity of shares" at the time of IPOs.

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IPOs: Many FIIs making quick exit on listing