Striking it rich

Public issues are witnessing record oversubscriptions—and the investments are profitable too.

The sensex is gyrating wildly but that has not dented the enthusiasm of IPO (initial public offering) investors, both institutional and retail. They are busier than ever lapping up shares on offer. Take, for instance, the recent Religare Enterprises IPO—it was oversubscribed over 160 times. The company has priced its issue at Rs 185 and the scrip is expected to list at a premium of around 60 per cent. “IPOs, historically, are perceived as under-priced, which explains the mad rush to subscribe to them. More often than not, scrips gain substantially on listing—provided, of course, the pricing is right,” observes Prithvi Haldea, Managing Director, Prime Database. “In a bullish market,” he continues, “no matter how aggressively a company prices its IPO, it is likely to get oversubscribed.”

Haldea adds that a retail investor’s appetite is driven by the state of the bourses. “A boom in the secondary market fuels a boom in the primary market, which leads many investors to opt for new issues on offer,” he says. Haldea says that the post-listing price of the scrip depends on how the company performs and it would be unfair to single out a stock based on market fluctuations. The good news for investors: most issues delivered substantial appreciation on listing. A look at the 10 recent IPO listings in the last two months (see Advantage IPOs) shows that 80 per cent have delivered nearly 20 per cent or more returns.

So, how and what should a retail investor do in the current market scenario? Haldea is realistic. “Most retail investors simply don’t have the understanding of the industry in which the company operates and cannot comprehend the details. They can check out which issues are the most sought after by the qualified institutional buyers (QIBs) and subscribe to them.” His rule-ofthumb is based on the fact that regulatory provisions compel a company to issue 50 per cent of its offered equity to QIBs—who only support IPOs which they believe are in sound financial health.