Having burnt their fingers in the meltdown of 2008, investors have growing perception that corporates in connivance with merchant bankers are overpricing the offers in their lust for big money.
No wonder the acronym IPO (Initial Public Offer) was redefined-- It's Probably Overpriced-- by the market. Eg: invesstors have suffered due to high-priced public offers since the Anil Ambani Group firm Reliance Power offer in February 2008. The stock is still trading at a price much lower than at what it was issued and listed.
The overpricing is leaving very little on the table for investors. IPO pricing continues to remain aggressive and merchant bankers are using innovative methods and asking investors to look at the issue as they are more concerned about increasing their commissions.
The fear is borne out of the fact that in the year gone by, 20 companies came-up with IPOs, but shares of most of these companies are now trading below the offer price. Against this, the year 2008 saw 30 IPOs hitting market, but shares of many these companies gave the investors modest-to-good returns. The experience was even better in 2007, when about 100 IPOs hit market and showered the investors with impressive returns.
Investors' sentiment taking a hit at a time when a number of PSUs, as also private sector firms, are lining up with offers. IPOs in 2009 received good response from investors but the returns are nothing great and investors have kept themselves from the primary market.
Merchant bankers are basically acting hand-in-hand with promoters and going for aggressive pricing. Going forward, unless pricing is made realistic, people will stay away from IPOs. The pricing of coming IPOs would have to be much more realistic.
The merchant bankers and promoters go hand-in- hand while pricing the IPOs, While the bankers satisfied the promoters by pricing issues higher, they also filled their own pockets. People have made money in some of the issues but aggressive pricing is keeping them away from investing in fresh issues. After having burnt their fingers in the NHPC, Adani Power IPO, retail investors stayed away from Jaypee Infratech IPO. The IPOs this year have been priced aggressively which is evident from the low retail investor participation.
After listing on the bourses the performance of most of the firms has been invariably below expectations, as the overpricing left very little on the table for investors. Participation was considerably low and a volatile secondary market made investors stay away from putting money.
Recently listed companies trading below issue price raised alarm in the market that investment bankers are overpricing the IPOs as their commission is linked to the issue size. For every issue the merchant bankers are changing valuation metric and are going for higher pricing of the IPO and they hope the investors would be interested every time. The job of merchant bankers is to strike a balance between the interest of promoters and the market demand. Promoters were interested to aggressively price the IPOs.
Pricing will remain key for the IPO market from July as appetite is intact in the market for fresh issues. Its up to the promoters or merchant bankers to decide whether they want to increase the issue size or increase the investor demand. All you need for making a primary market disaster is one or two big issue remaining under subscribed.
This year (2009) there were around 20 IPOs (Initial Public Offer) came to raise money from public and they sold shares worth about Rs 20000 crore to the public shareholders. For a great surprise public is the looser, measured in terms of change in the value of shares from the time of allotment in IPO to their current market prices. Promoters walked away with a lion’s share in this market during 2009.
Now most of the retail investors named this IPO term in theire own way, like ‘Initial Promoter Offer’, ‘Idiotic Pricing Offer’ and even ‘It’s Probably Overpriced.’ Shares of nearly two-third of the companies that came out with IPO this year are currently trading below their public offer prices, resulting into losses for those who purchased shares.
There is a common perception among retail investors that corporates in connivance with merchant bankers are overpricing the offers in their lust for big money.
Fair value seen at Rs.102. There is no margin of safety.
SJVN had margin of safety. It was offered at 52% discount to fair value. But still, it witnessed lucklustre listing. What about its fate? In addition, issue size is huge and subscription figure is disastrous.
I have applied for JIL via Sharekhan online. This is my 9th or 10th IPO which I have applied via Sharekhan online and not received any shares. Will you know if there is any problem in allocation if its applied online? or its sharekhan issue?
main ne 117 rs. ke rate se 300 shares (5-Lot) ke liye apply kiya tha.aur muze 300 shares jp infra ke lage hain. kaun se rate se muze 300 sheres allot huye honge? aur muze mera refund money aur 5% margine money kab tak mil payega. plz inform me... thank you