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Market experts say that the qualified institutional placement route has been misused to the detriment of the retail investor, especially with respect to stocks that are also present in the F&O segment.
A Crisil study found out that two-thirds of the qualified institutional placement issues in 2010 have given negative returns.
Below offer price
Thirty-three out of the 50 issues were trading below their offer price as on June 3, 2011. During the same period, the broader markets (Nifty and CNX 500) were flat.
Fourteen of the 50 stocks in question are in the F&O segment.
“QIPs were introduced as a stopgap arrangement after the 2008 meltdown and were used rampantly by companies to raise money in 2010,” said Mr Arun Kejriwal, Founder, KRIS Research.
“Given the fact that most QIPs are offered at a discount to the current market price of the stock, there should be a lock-in period before any institutional investor can exit.”
Mr Mukesh Agarwal, Senior Director, Crisil Research, said: “Unlike an initial public offerings, QIPs provide an easy investment alternative for institutional investors as there is no lock-in period for the shares allotted through the QIP route. Also, investors know the offer price in advance and can earn higher returns if timed appropriately.”
The process of making money from a QIP of a stock that is also present in the F&O segment works like this: Once the lead manager gives the price band of the QIP — which is usually at a discount to the current market price — the institutional buyer sells the stock futures. Once the institutional buyer receives allotment of the underlying shares after the QIP issue, the buyer sells the underlying shares and offsets the F&O transaction done earlier by buying back the futures contract.
These 50 companies raised Rs 22,500 crore through QIPs, and in terms of market value there is erosion of 5.3 per cent overall or Rs 21,300 crore, said the Crisil study.
Real estate, construction, IT and ITeS, and textile companies saw a maximum of 31 per cent value erosion from what they raised (Rs 3,080 crore).
Investor appetite
Aksh Optifibre Ltd was the worst performer of 2010 with its current stock price trading at 66 per cent below the QIP offer price, and Welspun India Ltd returned 72 per cent on its offer price.
Investor appetite for QIPs has come down drastically in 2011. This is evident from the fact that only three QIP issues went through in this year to date.
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