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Institutional investors have been lukewarm in their response to initial public offering (IPOs) in recent months.
Of the 21 IPOs that hit the market in 2011, institutional investors failed to put in bids for the full quota of shares reserved for them in 15 – that is nearly three-fourth.
With FIIs accounting for the bulk of institutional investments, there is further confirmation from the data put out by the market regulator.
The SEBI data show that the FIIs made gross purchases of just Rs 5,500 crore in primary markets in the first six months of this year, against Rs 12,400 crore in the same period of last year.
In contrast, their investments through the secondary market have remained almost at the same level as last year, measured on a gross basis.
Some recent offers such as Rushil Decor, Omkar Speciality Chemicals and Timbor Home — where retail portion was subscribed multiple times — saw hardly any subscriptions from either foreign institutional investors (FIIs), domestic mutual funds or insurance companies.
Foreign institutional investors and domestic mutual funds and insurers are the key categories of investors applying in the quota of QIBs in initial public offerings. Even in late 2010, there was a scramble among institutions to bag allotments to initial public offerings, as is evident from the oversubscriptions to IPOs.
Offers from BS Transcomm, Tecpro Systems and EROS International, for instance, saw the QIB portion being subscribed over 20 times. But from the very beginning of 2011, institutional investment interest in primary offerings has been waning.
Take Future Ventures, where the public offer was made at a price without any premium to the face value, QIBs took up only 26 per cent of the offer. In Rushil Decor, Aanjaneya Lifecare, Vaswani Industries, Servalakshmi Paper and Paramount Print Packaging, QIB subscriptions were less than 50 per cent of the shares on offer.
After cold-shouldering these stocks during their initial offer, institutions have not picked them up in the secondary markets either. Many IPO stocks (9 of the 12 listed) couldn't even manage to hold up at their issue price in the months following listing.
Lacklustre performance
Poor performance of the IPO debutants in the secondary market may be one reason for the declining institutional fancy for primary offers. Shilpi Cable Technologies (down 74 per cent), Servalakshmi Paper (down 72 percent), Innoventive Industries (down 21 per cent) and Muthoot Finance (down 10 per cent) are some of recent IPO stocks that are trading at a discount to their issue price now.
This apparent lack of interest in primary offerings should be a source of concern for PSUs lining up to raise money from the investing public.
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