The BSESENSEX closed at its all time high of 21,004 and it’s a good time to sit back and think about what is happening in the markets. The primary market is booming and we seem to be setting new records everywhere. We have seen three issues opening and closing on a single day, we have also seen in a span of 15 days, 15 issues hitting the market. Last week saw the listing of India’s biggest IPO ever, Coal India. Readers would recall that the company had issued 63.16 crs at an issue price of Rs 245. The issue received excellent response and all categories of investors made huge profits of between 30-40% in the first two days of trade.

This uptrend in the market has also brought about a new category of issues where the modus operandi would be discussed here. No allegations are being made against any company, merchant banker or intermediary, but the investing public who is a part of this entire exercise should become aware of where they are putting their money. This is also festive time and if one does burst a ‘bombshell’ or creates a small dhamaka it is the spirit of times and part of the festive mood.

Let us take an example of a promoter say ‘X’ needs to raise money for a particular project. He approaches a merchant banker and starts work on the DRHP (draft red herring prospectus). As part of the package deal the merchant banker offers a service where the issue is pre-sold and at a particular discount, the merchant banker or people in association with him underwrite the entire issue. The issue progresses from DRHP to RHP and the issue opens. Very often because there is not much to talk about in the issue, the usual road show, press conference etc is dispensed with. Hardly anybody is aware of the issue in the analyst and media community. Then one finds that the issue in most cases is very heavily subscribed in the HNI and retail categories. In such issues fundamentals normally are not a concern or in slightly stronger terms don’t exist.

Such issues have a very active grey market and the system of ‘Koshtak’ where the application form of Rs 1 lakh is sold with all entitlements is very actively traded. The issue is finally listed and in many cases does so above the issue price and one finds a few regular FII accounts who have also subscribed to such issues selling within the first few minutes of trade starting if not in the first hour. These institutions would in a manner specialise in subscribing to such issues where the fundamentals are poor or the companies do not merit attention. They have back to back arrangements and also have their buyback or exit clause with assured returns factored in.

On listing the HNI and retail jump into the share and one sees volumes which are a few times the issue size on day one. The price is extremely volatile and in many issues one sees a short seller squeeze which then results in a sharp increase in the last 30 or 60 minutes of trade. One must remember that what the so called intermediary is doing in managing an issue is doing his business and he will not let others into his tricks of the trade. He will change them as often he likes but “Can a leopard change its spots”? He has no issues if investors are caught on the wrong foot. Also remember that people who get stuck after each issue are investors and their number is increasing. One should not feel happy that he has made money in such an issue.

Let us see what has happened in these random issues.

Rishabdev Technocable. This was strictly speaking an FPO (follow on public offer) as the share was listed on the Pune Stock Exchange, but thinly traded. The company chose not to have any meetings for their issue and the demand created was huge. Application forms were not available and it was by way of word of mouth that the issue caught fancy.  Issue subscribed 7.76 times. Performance was a first day disaster. Even recovery was very small and the share has till date not seen its IPO price.

Excel Infoways. This share received poor support from institutions and was subscribed just about half a time. HNI’s and retail were very active and issue was overall subscribed just about 2 times. The issue opened above par and remained there for about seven days before the share started falling and in the next couple of months hit a low of Rs 37.15. Share continues to trade at a 40% discount.

Thinksoft Global. The issue was primarily an exit option to the private equity investor. Issue remained under subscribed and had to be extended. On extension, issue was oversubscribed in the HNI and retail categories. Share listed at a premium and continued to rise for a period of over three months and rose from an issue price of Rs 125 to a high of Rs 544. The share started falling from there and in a span of eight days fell to a price of Rs 232.90. The share continued to drift thereafter and today trades at Rs 110, below the issue price.

Syncom Healthcare. The issue just about subscribed in the institutional category and received support for 16.6 times in the HNI category and over 6 times in the retail category. The share opened at a premium and made a high of Rs 107.25 on listing day and closed at Rs 87.85 on day one. After falling for a few days it made a very strong recovery and made a high of Rs 162.40 before falling very sharply thereafter and making a new low of Rs 35. The share trades today at Rs 56 against the issue price of Rs 75.

Goenka Diamonds. This issue was manipulated even in terms of subscription figures. At the end of day one the issue was subscribed 1.65 times with institutional portion subscribed 1.07 times and HNI portion subscribed 7.36 times and retail a mere 0.03 times. By day three the QIB portion had reduced to 0.78 times a reduction of 0.29 times, the HNI portion had reduced to 2.99 times, a reduction of 4.37 times and the retail portion had increased to 0.66 times making the total issue subscribed 1.07 times. The final allotment saw the issue subscription having reduced even further and the merchant banker stepping in to fulfil the shortfall.

Coming to the stock performance, the share cracked on day one itself to Rs 92.35 against an issue price of Rs 135, but somehow recovered to close at a respectable Rs 127.85. The stock currently trades at Rs 93.10 a loss of 31% from issue price.

Tarapur Transformers. This company also chose to have no road show or press conference to announce its IPO. Virtually no institutional support, with HNI’s subscribing 5.07 times and Retail subscribing 2.74 times for an overall subscription of 1.74 times. The share had an extremely volatile debut and on listing day made a high of Rs 97.50 and a low of Rs 54.10 before closing at Rs 56.90. The share has been on a downtrend and currently trades at below Rs 45.

Aster Silicates. This was an issue where the promoter and the company had 19 criminal cases for cheque bouncing under section 138 and section 141 against it. It also had a decree awarded to M/s Nirma for an earlier company non-payment where the promoters were involved. With this background the issue received just about zero institutional support but HNI’s subscribed 12.46 times and retail 7.41 times for an overall subscription of 4.47 times. On the very first day the share recorded a traded volume of 9.59 cr shares which was a mind boggling 21.3 times the IPO size of 45 lakh shares. The delivery percentage of the IPO size was a staggering 91.88% and the stock closed with a gain of 74% on day one. On day three of trading the share made a high of Rs 255.95 and closed at the low of the day at Rs 190.25. From these levels the share now trades at below Rs 45 a loss of 62% from issue price.

Tirupati Inks. Excellent response from HNI’s who subscribed the issue over 23 times while retail subscribed over 12 times. Institutional portion also subscribed 1.78 times for an overall subscription of 8.77 times. Listing day saw a high of Rs 61.45 and a low of Rs 35.70. The close was marginally higher at Rs 36.65. Traded volume was at 6.94 cr shares which was 6.27 times the IPO size of 1.1 cr shares. In just a little over a month the share is trading at Rs 18.25 a loss of a mere 57%.

Microsec Financial Services.  A stock broking firm from Kolkatta which had very strong subscription numbers being subscribed 12.2 times overall and institutional support at just under 6 times. HNI support was almost 36 times and retail support at just over 11 times. The company had an extremely volatile start with the high being Rs 141 and the low being Rs 108.30. The share closed marginally higher at Rs 110.90 but below issue price on day one itself. In just one month the share is trading 30% below the issue price.

Cantabil Retail India. This was a garment retail chain based out of North India. The issue received well spread out support from all categories of investors and was oversubscribed 2.35 times. Debut day saw the share making a high of Rs 133.80 and a low of Rs 102.10 against an issue price of Rs 135. The share is currently trading at Rs 72.

These are some of the shares which have caused huge losses to investors. There are many more such examples which can be taken and this list is incomplete. The idea is to give investors a flavour of what has happened and show the different courses taken by these so called people who manage issues. This is the stock market and the principle followed is buyer beware, “Caveat Emptor”