 "MF cash sloshes around IPOs, too")
In 15 initial public offerings on the primary market, MFs accounted for 60 per cent of the anchor investment this year, which is up to 30 per cent of the total size issue and 60 per cent of the shares reserved for institutional investors, which have financial muscle.
Overall, MFs accounted for Rs 1,100 crore of the Rs 1,800-crore anchor investment in 15 IPOs in the 2015, says Prime Database. Top three fund houses — HDFC MF, ICICI MF, and Reliance MF — invested Rs 300 crore in the IPOs in the year.
When a company publicly sells new stocks and bonds for the first time, it does so on the primary market. The secondary market is where securities are traded after the company has sold all the stocks and bonds offered on the primary market. The BSE and the National Stock Exchange are secondary markets. A mutual fund is a pool of funds collected from many investors, for investing in securities. An anchor investor subscribes to an issue before its public opening. It pays an upfront amount and holds shares for at least one month to boost ordinary investor confidence. An anchor investor is an institutional buyer.
Among recent IPOs, Navkar Corporation, where eight fund houses applied through 21 schemes; Syngene International, five fund houses; and Pennar Engineered Building Systems, five fund houses, saw robust participation from fund houses.
"Several quality stocks in the secondary market were trading at expensive valuations for most part of this year. At the same time, MFs saw robust inflows in equity schemes, money which had to be deployed. IPOs were an avenue for this investment," said Dara Kalyaniwala, vice-president - investment banking, Prabhudas Lilladher.
At a recent event organised by Business Standard, officials admitted the market was a bit expensive and attractively priced stocks were difficult to find.
"There is a significantly higher premium for quality, and there is a tendency sometimes to take shelter in high-quality companies, because they have very strong, stable earnings. There are companies sitting at 35 PE (price to earnings) multiples, 40 PE multiples and have gone on to become 60 PE multiples," said Milind Barve, managing director, HDFC MF.
According to Sunil Singhania, investment chief, Reliance MF, the fund house has invested in IPOs, to make money in the long term.
According to Kalyaniwala, the advantage of coming in as an anchor investor is you are assured of getting an allotment, which depends on the fund manager and the lead merchant banker of the IPO. "While anchor investors typically invest at the higher end of the price band, they are assured of a high quantity of shares," said Kalyaniwala.
Most MF bets must have got positive results, as nine of 15 IPOs are above their issue prices. Also, the average return for the 15 issues is 10 per cent, compared to five per cent negative return on the benchmark Sensex in 2015.
"The idea is to buy into a business and invest with a long-term perspective, typically two to three years," said Singhania. MFs invested about Rs 48,000 crore in the secondary market between January and August.