The monsoon gave momentum to our markets but the surprise decision by Greece to have a referendum when the date of default is 30th June, is likely to give markets jitters when they reopen after the weekend. It appears that Greece administration will have to take a call on either staying with the Eurozone and accepting austerity measures or leaving. There is no third choice. The pressure on banks has been so great that they would be closed from today till the 5th of July when the referendum happens.
Our markets gained for the week between 1.8-1.9% and it would have been more but for the sharp fall on Friday on account of weakness in China and of course Greece. In India it poured and they say that when God is willing it doesn’t rain but pours. Heavens opened up and so far in June we have excess rainfall and probably making it the wettest June in many years.
What next? Our markets have had a decent rally over the last couple of weeks and we seem to have established a bottom around 7,950 on the NIFTY and 26,300 on the BSESENSEX. These levels should act as a strong support in the near term, while levels of 8,800 and 29,050 would act as resistances. While this is a fairly broad range I believe markets are not going to go either side of these levels in a hurry. Triggers for a breakout or a breakdown could be issues with the monsoon on the negative side and positive news on the quarterly results on the upside. April-June results season is roughly ten days away before companies start reporting them.
The IPO from Manpasand Beverages Limited was fully subscribed with QIB’s and retail portion oversubscribed while the HNI portion was undersubscribed. The HNI response to an issue only comes when leveraged funding is available at a margin of under 5% which means that the leverage is 20 times or more. This can only happen when there is an active grey market and the issue has a red hot response or interest. However we have seen in so many cases in the past there over enthusiastic response from leveraged HNI’s has killed so many issues post listing because the interest cost when added to the issue price makes the price unsustainable and the issue gets a bad name. Two outstanding examples of this were MOIL and Punjab and Sind Bank.
SEBI needs to seriously consider changing the rules of the game for subscription of IPO’s by HNI’s. What is the need for allowing them to subscribe in a single application upto one time the entire issue? In any case allotment is limited to the bucket size and overspill only permitted where the issue is not compulsory for QIB’s. Take the case of Manpasand where 75% of the book was compulsory for QIB’s. There can be no spill over in this issue from QIB’s so if at all you want to allow that precaution, the HNI should be allowed to subscribe upto his bucket size added with the retail portion and be allowed 25% of the issue size.
This change or ultimately allowing this leveraged category only upto their bucket size will ensure fair price discovery and demand. The trumped up demand simply because leverage is available at a margin of 2 to 3% and an individual is able to increase his application size to 33 and 50 times his initial investment leads to unhealthy practices. He needs to have an active grey market to de-risk or hedge himself.
I strongly recommend to SEBI that they must look at this aspect of subscription by HNI’s who are leveraged and are making the IPO space non-transparent.
