The Hindu Business Line : Performance of new IPOs: FII holdings plunge

Chennai, Sept. 19 If you thought that the presence of foreign institutional investors in a stock is an indication of its long term prospects while investing in an IPO, think again. FIIs often make a quick exit from firms, within months of them getting listed, if their investment behaviour during the first quarter of 2008 is anything to go by. FIIs visibly decreased their holdings. The record of domestic mutual funds is at least somewhat better with a few of them at least holding on to their stake.

marginal rise

Tulsi Extrusions saw FII exiting fully while GSS America witnessed a sharp reduction in the FII holdings.

On the other hand, Reliance Power (up 1 per cent), KNR Constructions (0.82 per cent) and Rural Electrification Corp Ltd (1.06 per cent) were the only IPOs to see a marginal increase in FII holdings.

But one fund manager thought that this is in keeping with the overall investment behaviour of FIIs in recent times when they have been on a selling spree with the global economic slowdown still at large.

“FIIs were withdrawing mainly due to the reaction to the current scenario in the secondary market, which was the trigger for the shorter time horizon (in holdings),” Mr Arindam Ghosh, Chief Executive Officer of Mirae Asset, told Business Line.

Mutual funds

Mutual Funds saw a more or less equal share of a hike or paring of pre-IPO stake. Tulsi Extrusions, which did not have any MF participation on listing, saw holdings inching up to 0.03 per cent by the June quarter. J Kumar Infraprojects saw MF holdings increase by over 2 per cent, to 11.78 per cent. Bank Overseas, GSS America and V Guard Ind has seen no participation so far.

Most of the companies saw foreign investors and mutual funds take a divergent stand in their holding pattern; the latter seemed inclined to maintain their holdings for longer.

“In any healthy market domestic investments should be able to absorb FII outflows,” said Mr Ghosh, explaining why FIIs being on a sell-mode need not necessarily affect MF holdings.

Promoters’ stake

Promoters mostly held similar positions in the March and June quarters. Reliance Power was a notable exception, which saw its promoters’ stake going down by around five per cent. The Anil Ambani Group reduced its holding in the company, in a move to soothe investor confidence, after the stock tumbled on listing. Shriram EPC saw marginal reduction in promoter holdings during the June quarter. GSS America on the other hand saw a 4.39 per cent increase in holdings.

The current meltdown in the global scenario is likely to work in favour of India, said Mr Ghosh. He said “India would be an attractive destination for foreign investment” as it is a growing market. “Money will ultimately flow into high-growth markets,” he added.

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