Poor show by IPOs to hit forthcoming ipos

Call it a day of coincidence , but the fact is two high-profile IPOs in recent months, and both from the power sector—Adani Power and NHPC— closed below their respective IPO prices for the first time. And if market analysts are to be believed, this will surely put pressure on the forthcoming IPOs, even if some of those were from outside the power sector.

On Friday, Adani Power, which had offered its shares in the IPO at Rs 100, closed on the NSE at Rs 98.65—a marginal discount from its IPO price of Rs 100. The company’s IPO closed on July 31 and the stock was listed on August 20.

In the case of NHPC, the slide below the IPO price was faster than in case of Adani Power. In less than a week of its listing on September 1, the stock fell below its offer price on Friday to close at Rs 35.25. The IPO closed on August 12.

In the IPO, NHPC shares were offered at Rs 36, at the higher end of the Rs 30-36 price band after the issue was subscribed nearly 24 times. There was exceptional interest from the high net-worth individuals (HNIs)—who mostly apply on borrowed money for short-term listing gainsand the HNI portion was subscribed over 56 times.

Since HNIs apply in IPOs with borrowed money, they make profit on listing only if they can recover their interest costs over and above the IPO price. In the NHPC issue, per share borrowing cost for HNIs was Rs 6.75. So they could have made money only if the stock went above the Rs 43 mark. Since listing the highest it had gone was Rs 42. Market players pointed out that HNIs who had applied with borrowed money actually lost in the issue .

About 16.4 crore NHPC shares were allotted to this investor group and there was substantial selling pressure from Day 1, dealers said. The below-IPO price closing for the two stocks came just days before the launch of Oil India IPO on Sept 7. Market players feel the investor disappointment with Adani Power and NHPC issues could also work as a warning sign for companies planning IPO and their merchant bankers to price their issues reasonably and leave some room for appreciation post-listing .

Incidentally, the close-below-IPO-price for the two issues came within days of Enam Securities, one of the lead brokerages in the market that is known for its syndication prowess in the public offering space, circulated a confidential presentation about its edge in marketing power sector IPOs.

The presentation claimed that since February 2004, through 13 power-sector IPOs it has mobilised about 35%, or Rs 4.5 lakh crore worth of demand out a total demand of nearly Rs 13 lakh crore. Enam Sec was among the lead managers to Adani Power and NHPC IPOs

A bounceback in global markets, followed by short covering by speculators, pushed the BSE sensex up by 291 points to 15,689. The day’s
gain—after four consecutive sessions of losses—came despite selling by foreign and domestic institutions, and in the absence of any major change in the rainfall scenario, market players said.

Provisional trading data showed that FIIs were net sellers at Rs 400 crore while net outflow by domestic institutions was at Rs 5 crore.

The sensex opened flat and remained in a narrow range till mid-session but then started gaining momentum. In late session, as speculators rushed in too cover their short positions to minimise their losses, the index rose to a n intraday high of 15,741. Only two of 30 sensex stocks—Tata Motors and TCS—ended in the red. Investors were richer by Rs 65,000 crore.

via Economic Times