With the initial public offer (IPO) by commodity exchange MCX getting oversubscribed 53 times, investors belonging to the High Networth Individuals (HNI) category, may be disappointed on the listing day. These are the investors who applied for over Rs 2 lakh-worth of shares in the public offer.
Analysts feel these investors may not be able to make a killing because of new trading norms mandated by the markets regulator for trading on listing day in a newly-listed share.
A circuit filter is bad news for MCX's HNI investors, since they could have made a killing if the share was allowed to rise unchecked after the discovery of equilibrium price during the pre-open session. The buzz from the grey market says that this issue commands a premium up to Rs 350, which means that the listing price could climb by over this amount over the issue price.
MCX's issue will be the first issue to be listed after the Securities and Exchange Board of India's (SEBI) decision to impose a circuit filter on the listing day. SEBI issued a circular in this regard on January 20. The circular says for an issue size of over Rs 250 crore, there will be a one-hour pre-open call auction method for IPOs on the listing day from 9 a.m. to 10 a.m.
During this period, there will not be any circuit limits. During this one hour period, any price level is possible. On the basis of the bids during this period, equilibrium price will be arrived at. After the end of pre-open session at 10 a.m., there will be normal market hours for IPOs. During these normal market hours, there will be circuit limit of 20 per cent of the equilibrium price.
Mr S. P. Tulsian of SP Tulsian.com said: “The issue is likely to find an equilibrium price around Rs 1,350 on the issue price likely to be set at higher end of the price band that is Rs1,032. With 20 per cent circult filter, one can expect maximum profit of Rs 270 on the likely equilibrium price and Rs 588 on the likely issue price of Rs 1,032.”
It is a normal practice among the HNI investors to borrow money to invest in issues. Considering the average prevailing rate of 16 per cent, the cost of borrowing will come around Rs 550. “So in all likelihood, the HNI may not make a gain with such a cost structure,” Mr Tulsian explained. The HNI category has been oversubscribed by over 150 times and cost has been calculated accordingly.