IPO market hots up

With sub-prime jitters allayed to some extent, the IPO market is once again hotting up. Most of the IPOs in the grey market that are open for subscription or have been scheduled for listing in the coming weeks are trading at a 30-50% premium in the grey market. The announcement of the Reliance Power IPO has only infused further buoyancy to the primary market.

The remaining quarter could see further action as many infrastructure, energy and power companies are slated to hit the market.

Issues like Koutons Retail, Consolidated Construction, Dhanush Technologies, Saamya Biotech, Kaveri Seeds, Supreme Infra, among others, are all trading at a significant premium to their offer price as per grey market sources. IPOs like that of Power Grid are further expected to generate good returns for retail investors. Going by the current grey market premiums, each share will fetch a premium of about Rs 35. Thus, gaining roughly Rs 10,000 excluding the borrowing cost.

Experts say while pricing the issue, usually 20-25% listing gains are set aside for investors. However, when markets fall, this premium shrinks and many a times the issue becomes unattractive for subscription. Bankers are now trying to leave more on the table, keeping in mind the volatile market conditions.

Sub-prime concerns had taken a toll on some issues slated to hit the markets during those months. Typically, when markets nosedive, listing returns diminish significantly, even if there is enough money left on the table for the investor. Public issue mop-up by Indian companies has gone up during September, with realisations of around Rs 4,000 crore, compared with just about Rs 665 crore in August.

This was mainly because markets did not perform well in August. The mobilisation in September is also significantly higher than about Rs 882 crore raised in the year-ago period, as per Prime Database.

“There is a large pipeline of issues in the coming months. If global markets see a downturn, the issues that have already closed for subscription could see some decline in the grey market premium,” says a merchant banker.