The Hindu Business Line : Fund houses move to cash to invest in IPOs

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Kolkata Jan. 25 With the primary market set to remain active, equity funds are preparing to participate even more readily in initial public offerings. Some of them are inclined to step up their involvement, courtesy some advanced planning for their cash positions, in view of the imminent arrival of IPOs.

Many of these issues will have fund houses lined up for investing and fund managers hope to stay prepared for the same. The trend may, in a small way, add to the overall cash holdings that a number of funds seem to have already worked up in recent days, largely on account of profit booking.

Fund sources, which suggest that cash will be necessary to meet large redemption requests or dividend payments, if any, feel that IPO applications are also a compelling factor.

The last count, pertaining to end December, in fact pointed to a fairly significant cash component in the case of many players. Some, in fact, had 8-15 per cent of their assets in cash. In a few stray instances, this shot well past 15 per cent.

The IPO scenario, as market sources indicate, is quite active at the moment and is likely to remain so in the weeks ahead. Some of the more prominent fund-raising candidates are Power Finance Corporation and Indian Bank. Both will tap the primary market for the first time.

These will add to what investment circles often refer to as the `primary issue pipeline' - which has in the first few weeks of January already spawned a few offers.

The ones that have closed for subscription in the past few days include Cinemax India (closed on January 24), House of Pearl Fashions (January 23), Akruti Nirman (January 19) and Global Broadcast News (January 18). The Redington (India) Ltd IPO, incidentally, closes today (that is, January 25), while the Transwarranty Finance offer will remain open till February 2.

Mutual funds have heartily involved themselves in some of these issues, sources pointed out, adding that the just-concluded Cinemax India will serve as an example. The Cinemax IPO - 89,20,000 shares - saw MFs bid for 3,94,90,110 shares, according to data supplied by National Stock Exchange. Similar participation was noticed in the case of Global Broadcast News and Akruti Nirman as well.

The end-December scorecard identified about 20 funds in the diversified category with over 10 per cent in cash. Among these were Can Growth Plus (19.4 per cent), Sahara Wealth Plus (17.2 per cent), DBS Chola Global Advantage (16.1 per cent), Principal Focussed Advantage (15.5 per cent) and SBI Magnum Global (13.3 per cent). In a few odd cases, the funds concerned were not able to fully deploy what they had raised during their NFO periods.

StanChart's IPO investment fund

Standard Chartered Enterprise Equity Fund, possibly the only fund launched in recent times with IPO investments built firmly in its USP, will actively look at capturing listing premiums.

The fund will as always track the primary market for opportunities, Mr Naval Vir Kumar of StanChart MF, said. "We try to identify good IPOs. At the same time we follow roughly an index-plus strategy," he added.

Enterprise Equity Fund, launched in June last year as a three-year close-end product, had an NAV of Rs 12.0079 on January 24. Its AUM stood at about Rs 1,600 crore, the MF had mentioned in December.

The latest portfolio statement released by the MF shows an 89 per cent equity allocation, mainly to large-cap stocks