Markets did virtually nothing last week and the benchmark indices ended the week with small losses. The BSESENSEX lost 204.71 points or 0.64% to close at 31,687.32 points. NIFTY lost 39.60 points or 0.40% to close at 9,934.80 points.
There were two primary issues last week from Dixon Technologies Limited and Bharat Road Network Limited. While both issues were subscribed, Dixon received excellent response and was subscribed 117.83 times with QIB portion subscribed 134.66 times and HNI portion subscribed 345.61 times. The cost of funding by the leveraged HNI assuming an interest rate of 5.5% for 7 days means that the listing price must open at a premium of Rs 640 or Rs 2,406. Current indications do not suggest that the listing price would be as high.
It appears SEBI has cleared the proposal to extend trading timings by a little over two hours. While there would be various ways to look at it, one thing which would certainly happen is that trading volumes when adjusted for the number of hours would not increase proportionately. Currently we have trading for 6 hours and 15 minutes which would increase by about two hours. With trading time increasing by about a third, volumes should also increase by about a third. This is unlikely to happen and would probably fall to some extent making the overall impact of the change that much diluted. The bigger issue would be logistics and managing the manpower required for meeting the extended timings. It would be difficult to have the same set of people managing from 8 am to 4pm currently extending the same to pm. Only time will tell how things are eventually mentioned. The final time frame when these timings become effective are expected to be announced shortly.
The first of the mega insurance issues had its roadshow last week in Mumbai. ICICI Lombard is tapping the capital markets with its offer for sale which begins on Friday the 15th of September and closes on Tuesday the 19th of September 2017. The issue would raise about Rs 5,700 crs and is likely to be followed by the issue from SBI Life which would probably have its roadshow in the current week. The present valuations in the BFSI space are very expensive and some of the NBFC’s and banks quote at 4 and five times book value. There is a first mover advantage that ICICI Lombard enjoys like what it enjoyed in the issue of ICICI Prudential.
There are many similarities between the issues of ICICI Lombard and ICICI Prudential. The first is the timing with both issues happening in the second fortnight of September. ICICI Pru listed on the 29th of September and this issue is likely to list a couple of days earlier. The size of the issue this time around is rs 5,700 crs and last time it was higher by about 4%. There was a reservation for shareholders of ICICI Bank and that was very heavily subscribed by HNI’s who leveraged to subscribe the same many times over. This time however the allotment in the shareholder category would be one lot to all and then pro rata ensuring that HNI’s don’t hijack this time around.
The shares of ICICI Prudential after listing traded below the issue price and it took a little over three months before they began trading at a premium to the issue price. This happened only in January 2017.
This time around while this would be the first general insurance company going public, there are two large PSU general insurers who have also filed their documents and are virtually waiting in the wings to open their issues. Besides them SBI Life and HDFC Ergo is also to happen sooner than later. With a multitude of choice in roughly two to three months where there would be six insurance companies listed, investors would have ample choice and data to compare and evaluate companies. My question therefore is that will history repeat itself in terms of listing price of ICICI Lombard?
This would be an important event in the life of the stock market and the insurance sector in particular.
