In the wake of some of the recent public issues failing to yield adequate returns, retail investors seem to have turned to bonds issues. According to industry experts, there has been a reduction in retail participation in public issues, while debt instruments like bonds issues are getting increased attention from retail investors.
Sample this: Future Venture India Ltd’s recent public issue was subscribed 0.61 times in the retail investors category. This was so despite the company offering a price range of Rs 10-11 at par the face value of the equity share. On the contrary, the average return from bonds of reputed government and private corporates like L&T, SBI, IDFC, Tata Capital etc is estimated at 10-11 per cent annually.
Figures indicate most companies that came up with a public issue recently, traded below the issue price. For instance, PTC India Financial Services Limited, listed on the bourses on March 30, 2011, ended at Rs 19.90 on Wednesday, down from its issue price of Rs 28 per share. This could also be gauged from the fact that BSE’s IPO Index — a measure of returns on newly listed companies — has lost about 14 per cent in the last one year.
“Historically, retail participation in IPOs has been high. But equity markets have been volatile for the past six months, affecting the returns from the listing of the IPOs. Bonds issues like those of IDFC and L&T had added incentive of tax deduction for the retail investors, making it a viable option for investments,” said Venkatraghavan S, director, Investment Banking, IDFC Capital Limited.
“In the present rising interest rate scenario, investors feel more comfortable to invest in debt instruments in addition to fixed deposits,” added Venkatraghavan.
“Many of the IPOs have failed to yield returns for the investors in past one year, while bonds issues offer higher returns than fixed deposits and safer investments than equities,” said DK Agarwal, chairman, SMC Wealth Management Services Ltd.
However, analysts believe even as debt market is seen as the next best bet for retail investors, the underlying dynamics of asset class in the current scenario may require further steps to make it attractive for the retail investments. Ajay Pandey, faculty member at the Indian Institute of Management, Ahmedabad (IIM-A) feels the equity markets are getting dull because the euphoria about the growth has started evaporating.
Bonds are a good bet in the current scenario. But there are a few issues including the absence of secondary market for bonds, making it difficult to trade. Some bonds are there including the corporate bonds, but they are not as liquid as government bonds. This turns out to be a dampener for the investors.
On the IPO front, a senior official from Enam Securities Pvt Ltd, a leading investment bank, said, “The time has come that companies need to leave something for the investors on the table. Unless the pricing is correct and attractive to the retail investors, their participation will remain a concern.”
