The success of the initial public offering (IPO) by the Multi Commodity Exchange (MCX) was astounding by any standards. It is especially notable given that the IPO market has been moribund for the past year. MCX offered 12.6 per cent of its equity, or Rs 633 crore worth of shares, at the high end of the price band of Rs 860-1,032 a share. Subscriptions hit Rs 36,000 crore, with record ratios of retail over-subscription (24:1). Retail subscribers will receive an allotment of eight shares for every bid of 192 shares (the maximum permissible retail bid). The segment for high net worth individuals (HNIs) had 150:1 over-subscription, and the institutional over-subscription ratio was 49. This is a good signal for the government now looking to revive its disinvestment programme. If the feel-good factor in the primary market did not spill over into the ONGC share auction held yesterday, it could be because the floor price of Rs 290 was fixed at a level slightly higher than what the market had expected. In spite of that, however, the auction may generate close to Rs 12,000 crore for the government. So far, the disinvestment proceeds this fiscal year are a negligible Rs 1,150 crore. There should be, thus, every reason to fast-track further plans.
As for MCX itself, its listing dynamics will be fascinating. The “first-day price cap formula” is being applied for the first time. Under this new formula, an “equilibrium price” will be calculated by auction. On day one, the stock’s price appreciation will be capped at 20 per cent above the equilibrium price. Given the over-subscription ratios, this could stress-test the Bombay Stock Exchange’s (BSE’s) systems on MCX’s debut. MCX isn’t listing on the National Stock Exchange (NSE), which is used to handling far larger volumes. This is not surprising given the history of bitter rivalry between MCX and NSE. Although MCX primarily offers commodity derivatives trading, where it is the fifth-largest player in the world, it also has huge volumes in forex derivatives. NSE offered exactly the same forex contracts free for a while, resulting in acrimony. MCX, the first Indian financial exchange to list, already had a corporatised structure. The major shareholders, who divested at the IPO, included MCX’s promoter Financial Technologies, State Bank of India, Bank of Baroda, Corporation Bank, GLG Financials Fund, Alexandra Mauritius and ICICI Lombard General Insurance. Ironically, the BSE has a structure of member-brokers that harks back to a more opaque and traditional era.
The success of the issue proves beyond doubt that both retail and institutional punters will reach for their wallets if they see reasonable chances of quick gains. The trick is to leave enough on the table to enthuse the “first-day first-show” stags as well as long-term investors to subscribe. MCX clearly priced things correctly; and the lead-management appears to have been well handled as well. If the government can draw on those lessons, it could turn the comatose disinvestment programme around.