Betting on initial public offers (IPOs) of small companies could be a high-risk game. At least 15 of the 23 IPOs listed this financial year are trading below their issue price. Moreover, 12 of these are available at a 30-85 per cent discount on their IPO prices. Together, these companies managed to raise over Rs 4,000 crore.
Market experts say price manipulation on many of these counters was high. Operators managed to corner a chunk of shares in some issues at a 40-50 per cent discount to the set IPO price and went on a selling spree after listing. This resulted in a price crash. Surprisingly, not a single small IPO had to face subscription issues as a result of extremely poor market conditions. The broader benchmark indices, Sensex and Nifty, fell over 15 per cent. The BSE small-cap and mid-cap indices were down 19 per cent and 13 per cent, respectively.
“Of late, investing in small IPOs has been dangerous,” points out Prithvi Haldea, chairman of Prime Database. “There are high changes of manipulation. Investors should stay away”.
Among the recent IPOs, the share price of little known companies like Bharatiya Global Infomedia fell 85.7 per cent from its issue price. The company, which managed to raise Rs 55 crore, was listed in July and had an issue price of Rs 82. Similarly, Servalakshmi Paper and Brook Laboratories fell 79 per cent each. Sanghvi Forging was down 71 per cent and RDB Rasayans, which was listed last week, fell 66 per cent in a single trading session.
“Price movements on listing day and subsequent fall in trading volumes clearly indicate high operator activity,” notes investment advisor S P Tulsian. “In many IPOs, application base is very small and a closer look will reveal the true picture. There is no fundamental involved in the pricing of these issues.”
RDB is a classic case. The stock, listed last week, crashed 73 per cent on listing and touched a low of Rs 18.5 in a single day on BSE , against an IPO price of Rs 79. The company had raised Rs 35 crore.
Among others, Innoventive Industries, Paramount Printpack, VMS Industries, SRS Ltd, Timbhore and Readymade Steel India were down 30-60 per cent from IPO price. Institutional investors stayed away from most issues and only retailers invested. All these issues were below the size of Rs 200 crore and were rated grade 1-2 by rating agencies. While grade-1 suggests poor fundamentals, grade-2 suggests below-average fundamentals. However, grading can be deceptive, as it does not take the pricing of the IPO into account.
Only three companies raised funds in excess of Rs 500 crore. The biggest IPO was by L&T Finance (Rs 1,245 crore, followed by Future Ventures (Rs 750 crore) and Muthoot Finance (Rs 901.25 crore). All three fell 6-10 per cent below their issue prices.
Seven other IPOs will list in October. These include Indo Thai Securities, Flexituff International, Taksheel Solutions, M&B Switchgear, Onelife Capital Advisors, Swajas Air Charters and Tijaric Poly-Pipes.
| TOP IPO GAINERS/LOSERS SINCE APRIL 2011 | |||||
| From issue price | In% | * In Rs cr | Issue size Rs cr | Issue price | Current price |
| TOP LOSERS | |||||
| Bhartiya Global | -85 | -47 | 55 | 82 | 11.75 |
| Servalakshmi Paper | -78 | -47 | 60 | 29 | 6.32 |
| Brooks Lab | -77 | -49 | 63 | 100 | 22.05 |
| RDB Rasayans | -73 | -25 | 35.55 | 79 | 21.25 |
| Sanghvi Forging & Engg | -72 | -26 | 36.9 | 85 | 23.85 |
| TOP GAINERS | |||||
| Birla Pacific | 83 | 50 | 65 | 10 | 18.00 |
| Aanjaneya Lifecare | 75 | 83 | 117 | 234 | 411.00 |
| Tree House | 30 | 31 | 113 | 135 | 176.00 |
| Prakash Constrowell | 29 | 13 | 60 | 138 | 178.00 |
| Inventure Growth Sec | 26 | 23 | 81 | 117 | 148.00 |
| *Approximate gain/loss Source: BS Research Bureau | |||||
MODUS OPERANDI
Brokers say Gujarat is a key centre for IPO manipulators. Two infamous operators, nicknamed Rangeela Raja and Barter Raju, are under the Securities and Exchange Board of India (Sebi) scanner since 2010. A report from the Intelligence Bureau had named them for stock market manipulation and havala. Also, a market manipulator from Mumbai, banned by Sebi in 2009 for dealing in Pyramid Saimira and Atlanta, was active.
They were using a base of ‘dummy’ retail applicants to get issues subscribed. In cities of Gujarat and Rajasthan, brokers pay Rs 500 to Rs 3,000 per application to retail bidders in cash along with subscription money. This way, many of the IPOs are pre-sold to operators at a 40-50 per cent discount to set issue price, say sources.
