 "High-yield bond offers attract retail investors")
The good returns on equity share listing and chase for better yields amidst falling interest rate on term deposits and small savings schemes are driving retail investors to IPOs (initial public offerings) and bond offering by corporates. Citrus Advisors founder Sanjay Sinha said interest rates on deposits and government saving schemes had come down in the past one year and there was general demand for high-yielding securities.
Indiabulls Housing Finance’s public offering of non-convertible debentures (NCDs), providing 8.55-9.15 per cent yield, got a strong response on opening.
The issue received bids amounting to Rs 4,100 crore, against the base size of Rs 3,500 crore.
Mortgage lender Dewan Housing Finance Corporation’s NCD offer in August was subscribed by over six times on the first day. Further, the company decided to close the issue, nearly two weeks ahead of scheduled closure on September 12.
It offered interest rates between 9.10-9.25 per cent, depending on the tenure of the bond.
On the other hand, banks have substantially reduced interest rates on deposits by up to 100 basis points in the past 12 months.
Currently, the interest rate on deposits of below Rs 1 crore provided by Union Bank of India ranges from 5.25 to 6.75 per cent for short-term deposits, with tenures ranging from seven to 179 days. For tenure between 180 days and one year, the interest rate offered is 7-7.5 per cent. For one to three years, it is 7.55 per cent, three to five years offers 7.50 per cent, while for above five years, it is 7.25 per cent.
Another reason for retail investors looking at corporate bonds is that the government has also reduced small savings rate. The rates will be benchmarked to yields on government bonds with similar maturities.
On the equity side, most IPOs this year have also seen healthy retail participation. Investors were seen scrambling to invest in issues such as RBL Bank, Advanced Enzymes, Thyrocare and Mahangar Gas. These IPOs saw at least five times more demand than the shares on offer in the retail category — those investing up to Rs 2 lakh.
The retail interest is largely being driven by the good after-listing performance of IPOs this year. Experts add retail is also getting attracted to new sectors and themes entering the market through IPOs.
“We have seen a lot of new paper coming to the market. Businesses, which have no or little representations, such as e-commerce, medical diagnostics, are launching IPOs, which is helping generate lot of investors. First insurance listing is underway and very soon we will have stock exchanges. All this is helping build appetite,” said Deven Choksey, managing director, KR Choksey Investment.
These new-age sectors have not only received healthy demand in IPOs but have also seen good follow-up demand in the secondary market.
Quess Corp, which is into recruitment solutions, saw its IPO get oversubscribed 140 times and has gained over 60 per cent after listing. Similarly, diagnostic chain operator Thyrocare saw over 70 times oversubscription. Its shares are now trading 40 per cent higher over the issue price.
“There is no denying that a lot of investors are looking at IPOs only for short-term gains. These gains, however, are supported by the buoyancy in the secondary market,” said Choksey.
The benchmark S&P BSE Sensex has rallied over 20 per cent from its 2016 lows touched on February 29, 2016. There have been 17 new listings through IPOs this year and the pipeline remains strong.
