Unlike in the Indian stock market, no part of initial public offerings (IPOs) in the US is reserved for retail investors. So, Indian investors seeking to invest in the $21-billion Alibaba IPO will do well to wait for the company to list on September 18, lest they are edged out by large global investors.
Feroze Azeez, director and head (investment products), Anand Rathi Private Wealth Management, says, "The valuations are attractive, but not great. There are other stocks in the listed e-commerce space, which one can buy in the secondary market. While it is true Alibaba will command a premium after listing, the fact is this is on the back of higher market levels."
To buy in the secondary market, you need an international broking account, as well as a custodial account. A custodial account is similar to a demat account; shares will be transferred into that account. If you are a customer of an international bank, your relationship manager based in Dubai or Singapore could invest on your behalf. But for this, she/he will have to given power of attorney. There are websites through which you could do this, too. In case of listed equities, it is easier to invest online through global brokers present in India, such as interactive brokers.
One has to open an offshore account with a bank or a broker empanelled abroad; foreign branches of global banks (with presence in India) are a good option. A few Indian brokerage houses have foreign partnerships and can refer Indian clients. High net worth individuals invest in stocks listed on the Nasdaq or the NYSE, though this isn't common.
To participate in any IPO, you have to get in touch with the distribution arms of a merchant banker. However, as the allotment could be discretionary, a large investor gets a large allotment, while a small investor might lose out, says Umang Papneja, chief investment officer (CIO), IIFL Private Wealth Management.
Also, under the under the Liberalised Remittance Scheme, the limit for investment abroad is $125,000 a person. So, if you are already paying equated monthly instalments for a property or servicing a loan, take that into account, too. Of course, if you have already remitted some money abroad, it could be used to buy a company's shares.
Swapnil Pawar, CIO, Karvy Capita, says typically, investment in foreign IPOs is by high net worth individuals who invest through family offices. This is because they invest sums of Rs 50-100 crore. Generally, individual investors prefer exposure to foreign equities through the mutual fund route.
