Cherry-picking IPOs based on the subscriptions of qualified institutional buyers (QIB) might seem like a smart idea. But it is not so.
Chances are that the institutional investor you followed has exited the stock.
A
Man Infraconstruction, where the QIB (QIB category includes mutual funds, insurance companies, banks & FIIs) portion was subscribed 96 times, has seen domestic institutional investors reducing their stake to 0.86 per cent by the December-10 quarter from 4.46 per cent in March-10 quarter, which was the first quarter after listing.
Talwalkars Better Value Fitness, Goenka Diamonds, Electrosteel Steels, Intrasoft Technologies are few other issues where there is a significant fall in DII stake after listing. Some of these stocks have fallen over 40 per cent in the market correction since November and are now trading 40 to 60 per cent below the offer price.
The moot question is whether this was the cause for DII selling or whether the decline is the effect of DII selling.
Are there any lessons to be learnt from this data?
Mr Satish Ramanathan, Head-Equities, Sundaram BNP Paribas Mutual Fund, is of the opinion that the institutional buyer's exit could have followed good listing day gains of some IPOs. “It is possible that institutional buyers who saw their target return achieved on the listing day sold stake and exited without further thoughts...”
Low allotment in some of these offers could have also prompted institutions to exit, says Mr Sandip Sabharwal, CEO – Portfolio Management Services, Prabhudas Lilladher. “In IPOs that are subscribed 20-30 times, the allotment which an institutional buyer would get would be very small. So it doesn't really make sense for the buyer to hold the stock for long.”
Most fund managers, however, take the common stand that QIB subscriptions are not the right indicator for retail investors. Mr Sudhakar Shanbhag, CIO, Kotak Mahindra Old Mutual Life Insurance, says, “Institutional investors look at IPOs in line with their portfolio construction requirements. One cannot make a rule out of this. The QIB subscription should be seen as only one of the inputs to decide subscription- if at all.
“Retail investors are recommended to have disciplined asset allocations based on principles of financial planning, rather than look for short cut measures.”
IPOs that listed amid fanfare last year are trading at vast discounts to offer price now. Midfield Industries, Man Infraconstruction, Microsec Financials, BS Transcomm, DB Realty and Bedmutha Industries, have fallen over 40 per cent in the recent market correction (since the November high) and are 40-60 per cent below the offer price.
Are you game for these stocks now? Well, fund houses hint caution.
The steeper than broader market correction in some of the recently listed IPO stocks is because of a de-rating that is happening, says Mr Ramanathan. “IPOs that debut in a bull market get premium valuations on high demand. But post listing when market condition changes, the stocks get de-rated and that's what is happening now. Retail investors are better off waiting for the quality PSU IPOs that are coming up.”