Pricing, company fundamentals make for promising launch.
The primary market seems set for a revival, with two major issues receiving strong support in the past week, on the back of smaller issues sailing through earlier. Experts reckon the positive market situation and favourable pricing have helped sentiments improve.
The Rs 977-crore Engineers India follow-on public issue was subscribed 13 times, and the retail segment, seen to be lower in other issuances, was subscribed 2.7 times. The segment for high net worth individuals was subscribed 5.8 times.
The Rs 1,654-crore SKS Microfinance initial public offer (IPO), which closed for qualified institutional buyers (QIB) on Friday, was subscribed 10 times, even before the retail investors pitched in.
| IPO GAINS | |||
| Issue price | Current | Gains | |
| Aster Silicates | 118 | 190.25 | 61.23 |
| Hindustan Media Ventures | 166 | 179.45 | 8.10 |
| Mandhana Inds | 130 | 159.19 | 22.45 |
| Persistent Systems | 310 | 456 | 47.10 |
| SJVN | 26 | 23.9 | -8.08 |
| Talwalkar Fitness | 128 | 170.8 | 33.44 |
Madhabi Puri Buch, chief executive officer and managing director of ICICI Securities, sees this as a positive signal. She says, “Yes, this is indeed a signal that investors like good opportunities in the markets.”
The market being strong at above 18k-levels has certainly helped the sentiments. But pricing has also been a strong point for these issues. Some issues in the past quarter have also provided strong gains and prompted investors to take a relook at the IPO market. Aster Silicates’ stock price has seen growth of 60 per cent from the Rs 118 listing on July 28 to Rs 190 at the moment. Similarly, strong companies like Persistent Systems and Talwalkars Fitness have approached the market and seen gains of 47 per cent and 33 per cent, respectively.
“Sound pricing and good companies have been the catalyst and there was strong overseas demand for SKS Microfinance,” says Dharmesh Mehta, head equities at Enam Securities. Buch mentions, “While secondary markets being positive has been an advantage, there was a conscious decision to leave something on the table for investors. Pricing has been an important aspect for the success.”
According to Prithvi Haldea, chairman of Prime Database, “These were strong opportunities for investors. And, one would have expected much better retail response.” He rules out the scenario of a complete revival but sees these developments optimistically.
What emerges is that good companies with strong pricing have takers in the IPO market. Earlier, high valuations and a volatile market caused the IPO market to dry up. The first half quarter of the current year saw no issues come through. Only small issues were lined up.
Also, the move by the Securities & Exchange Board of India to have QIB bidding close earlier than the retail investors has added to the latter’s confidence. “Investors now know much earlier how the big players have bid and can take a cue from this,” says Buch.
“There are still 40-odd companies that have the regulator’s permission to tap the primary market and have been sitting on the fringes,” says Haldea. This could be a positive signal for these issues and also for public sector disinvestment.
“The lesson is clear, leave some wealth creation gap for investors and the issues will be successful,” says Buch. This should be good news for around Rs 50,000-crore worth of offerings waiting to hit the market in the current financial year.
