Primary markets last week of fin year: some stray thoughts

It’s that time of year when one takes stock of what has happened in the year gone by. Next week the financial year 2009-2010 would be coming to an end. It would be time for introspection of what has happened in the market place particularly in the primary market and looking at what has happened, and what one should expect in the year ahead.

The regulator has made quite a few changes which should make the market a level playing field and also help in reducing the time to allotment of primary issues. The step to extend the ‘ASBA’ application on a compulsory basis in the case of NFO’s is indeed creditable and one must appreciate the move by SEBI for introducing the same. However there is a humble request to SEBI that they must in turn through RBI make it mandatory for all banks to offer the facility. What is the point of making it mandatory if the service is not available even from the large PSU banks which have capital market branches?

Next week we would look at two things and have a special report on the performance of all IPO’s which were listed in the financial year 2009-2010. Secondly our site was launched in the end of July 2009, and would take a look and review the recommendations it made on various IPO’s during the course of the year. In short it would be a report card on the performance of this website’s recommendations.  

Coming to the primary markets the week gone by has been interesting. We saw two issues open and close during the week and yet another issue which had opened last week close. Shree Ganesh was subscribed 1.96 times. There were two issues during the week and one of them was Intrasoft Technologies Limited, the company which owns the website 123 greetings, a free e-card portal. Not much was known about the company but it was very well subscribed and received bids for 18.95 times its issue size of 37 lakh shares. The other issue during the week was Goenka Diamonds and Jewels Limited. This issue was for 1 crore shares and was subscribed on day one itself. The institutional portion was subscribed more than one time and the HNI portion over 7 times. Retail portion was hardly subscribed. What happened over the next two days is intriguing and baffling. The subscription in the two categories of QIB and HNI kept on reducing and only the retail portion increased. The final figure was 1.07 times subscribed with QIB portion having bids for a mere 0.78 times and HNI’s reducing from over 7 times on day one to just under 3 times. The retail portion was subscribed 0.66 times. The question that comes to mind is whodunit?

This week will see DQ Entertainment listing on Monday. The discovered price is Rs 80 and the issue was subscribed over 86 times with HNI’s bidding for 270 times their reservation. Tuesday would see the listing of IL&FS Transportation Network Limited listing. The issue is priced at Rs 258. This issue was subscribed 33 times and had excellent support from QIB’s and HNI’s. NMDC which had offered through its FPO 33.22 cr shares during the issue which was open between 10th and 12th of March, the shares so allotted would be available for delivery into the market. People had already started selling these shares and there is a large auction of roughly 1.45 lakh shares on the BSE for shares sold on Tuesday the 23rd of March and not delivered. The quantity of shares to be auctioned on NSE is not yet known but should be a large number. The shares of NMDC have been late in being credited to the account of investors.

Going forward the debate would continue on two fronts namely price and divestment. It has been noticed that wherever the price band is attractive and leaves something on the table for the investors, the issue is very well received and receives excellent response. In case the issue is overpriced, there is poor response and the issue scrapes through and post listing invariably falls. The second issue is of divestment. The government needs to sell shares and has done so in the past during the year with NHPC, Oil India, NTPC, REC, United Bank of India and finally NMDC. It received excellent response in the case of NHPC even though many felt that the price was expensive. What happened next is the poor response that OIL India received. Similarly in the case of NTPC, investors did not understand the French Auction and did not subscribe to NTPC. The result was a bail out by insurance companies and PSU banks. REC was reasonably priced and received decent response from retail, though not fully subscribed and good response from HNI’s. Investors made money and those who are holding the shares are making even more. The next issue thereafter was NMDC which has proved to be a disaster. The share is already trading below the issue price of Rs 300 with the share closing at Rs 298.30 and credit of shares has only been done this Saturday the 27th of March.

The key take away from this is that for wider participation and creating large investor base, the pricing has to be the key. It is becoming imperative that money be left on the table for investors and even as I become repetitive and boring saying the same thing, I would once again say that Merchant Bankers and Promoters must price the issue attractively.

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