Investment bankers wait and watch

"5% quota for MFs is good, but not  substantial," says Nimesh Kampani of Morgan Stanley.

Investment bankers are a worried lot these days. Several investment bankers who did not wish to be quoted said the pro-rata allotment of shares to institutional investors might raise serious concerns on the quality of money that would chase primary issues.

One investment banker said hedge funds, especially with short-term mandates looking for quick gains, could wreck the post-listing performance of new issues.

Besides, the payment of 10 per cent margin money could affect sentiments adversely though one would have to wait and watch how investors behave, he added.

Apart from this, institutional investors will also wait till the last day of book-building to assess the demand and also to save on the opportunity cost of margin money.

DSP Merrill Lynch Chairman Hemendra Kothari said considering the interest cost on margin money, investors would wait till the last minute to put in their applications. As a result, retail investors would not be able to judge the demand till the closing stages of the issue, he said.

"The decision to reserve five per cent of the issue for mutual funds is a good decision, even though it is not substantial," Kothari added.

But Nimesh Kampani, chairman and managing director, JM Morgan Stanley, said the move to up public shareholding was very positive as it would improve the supply side. The five per cent reservation for mutual funds was also welcome as it would benefit the retail investors in the end, he added.

Kampani said he was looking at the 10 per cent margin money for QIBs positively. Any institution will have to demonstrate its seriousness in an offer. This will help determine the genuine demand for the issues and ensure a better price discovery.

As far as pro-rata allotment for QIBs was concerned, Kampani said it was to be seen how it worked. This was not the case in most international markets, he added.

S Ramesh, executive director, Kotak Securities, said in the capital markets, India had successfully implemented a different format, in which 50 per cent of the IPOs were allotted to retail and non institutional investors, providing an extremely important opportunity to these investors to participate directly in wealth creation.

The suggested proportionate allotment to QIBs will be another example of such differentiation. The reservation for mutual funds will be an enhanced opportunity for these funds and indirectly, for Indian retail investors, to benefit from good quality IPOs.

"The final verdict on the guidelines will be the investors' and we will have to wait for the investors' pricing strategy in IPOs based on the new guidelines. A move towards a higher float will enable more liquidity and facilitate greater trading in the market. This is a good move from the capital markets' point of view," Ramesh added.