Damp listings force HNIs to go slow on IPOs

Investment bankers are a worried lot as response from high net worth individuals (HNIs) to initial public offerings (IPOs) has dwindled and the demand from this segment shows signs of further flagging.

This trend has developed over the last four to five IPOs, industry sources said. Mahesh Chhabria, director, Enam Financial Consultants Pvt Ltd said, "We have seen a definite slowdown in subscriptions to IPOs from HNIs and this is worrying."

He attributed the decline to lower returns that IPO have been generating in recent times. "HNIs are leveraged investors and when the returns do not cover the investments made by them their interest will go down," he said.

Against the return of 15 to 20 per cent, which investments in IPOs were generating last year, returns have plummeted to around 6 to 7 per cent in the new listings. One of the main reasons for this is the volatile stock markets which has created havoc with initial listing prices.

3iInfotech listed lower at Rs 97.80 against its offer price of Rs 100. It is still quoting at Rs 98.10 a share.

JaiPrakash Hydro, another new issue, listed at Rs 31.50 compared with its offer price of Rs 32 a share. Currently, the scrip is ruling at Rs 30.75 on the National Stock Exchange.

In the case of 3iInfotech, the demand from HNI was only 12 per cent of the total demand, while in the case of Allsec Technologies - which is yet to make its listing debut, the demand from non-institutional non-retail category was just over 13 per cent.

This segment of investors typically like to make a huge profit by offloading some portion of their shares on the initial listing of new shares.

According to merchant banking sources, HNI activity is expected to become even lesser as IPO financing has also stopped. Advancing money against investments in IPOs becomes attractive for banks and non-banking finance companies only if issues are oversubscribed over 10 times, as they immediately recoup whatever they have lent out.

Since issues are getting oversubscribed only to the extent of five or six times, IPO financing is no longer an attractive options for such lenders.

While qualified institutional bidders' (QIB) interest in IPOs still seems to be strong, foreign institutional investors make up a large chunk of the QIB portion.

The fear in the market is that the flight of money from emerging markets will also impact this segment. The apprehension is that dwindling returns from IPOs will also force this class of investors to take a re-assess investments in the primary market.