 "Market message in stocks trading below QIP price")
QIP is a capital-raising tool, where a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible into equity shares, to a qualified institutional buyer. It does not involve requirements, such as pre-issue filings to the market regulator.
This happened after last May's national election results. The Narendra Modi government raised expectation of pro-business policies after years of perceived government inaction.
But an analysis of companies taking the QIP route shows the environment has not really changed at the expected pace.
Nine of the 35 companies, nearly 26 per cent, which took this route since the election results are trading below their QIP prices. The Sensex, the benchmark index of the BSE, has rallied about 20 per cent to 29,004 since then.
The institutional investors of Jaiprakash Associates, Reliance Communications and GMR Infrastructure are the biggest losers. Their stocks are trading 65, 52 and 43 per cent below their respective QIP prices. These three companies were also among the early ones to tap the QIP market in July.
“After the election results, a lot of expectation was built up. That saw a rally in all the stocks but, gradually, the markets started differentiating between those with a strong balance sheet and those having highly leveraged books,” says Jagannadham Thunuguntla, head of fundamental research at Karvy Group. “The expectation was that leveraged companies would be able to repair their balance sheets quickly with monetising of assets, but that did not really happen in many cases.”
“There was also an expectation that interest rates will come down, helping debt-ridden companies manage their costs better. That has not happened,” says Ajay Garg, manaing director at Equirus Capital.
There also are companies which have done well after the QIPs. Ashok Leyland is trading at about Rs 67 a share, 86 per cent up from its QIP price of Rs 36.
“The companies that raised equity to pursue growth have done well,” says Nitin Jain, chief executive, retail capital markets, Edelweiss.
After the poll results, there were investors willing to allocate a part of their fund to debt-ridden companies. They'd thought the earnings of troubled companies would improve quickly in the changed environment, giving them the benefit of financial leverage. This helped Jaiprakash Associates, Reliance Communications ad GMR Infra succeed in the QIP market. “The markets became very optimistic after the election results. There are changes but not at the pace visualised,” says Jain.