Monday, November 2, 2009

IPO bazaar.. A mug's game

Questions posed to me by DNA Money:

1.Do you believe that the low listing day gains would affect the appetite of QIBs?

2.What would you say might explain the anchor investor's willingness to invest in IPOs even when aggressive pricing has been seen to leave little room for short-term gains?

My response was as under:
1. QIB’s are of different shades. Genuine Institutions would go by price and value equation and take a long term view. Unfortunately, in our markets, too many QIB’s appear to be of the buy and flip kinds (as evidenced by the huge churn on listing days) and to this extent, the appetite would be driven by expectations of listing gains. Often, subscription by QIB’s is not a cut and dried factor. Relationship and influence of the investment banker selling the issue is a strong factor too. Apart from this, there are informal arrangements, which influence the decision to invest.
2. The anchor investor is a misnomer. Thirty days is hardly any time for a QIB. Here, the influence used by the lead manager/book runner plays a big role. The merchant banker has to convince the QIB fund manager about the market making mechanism, the ability of the promoter to support the scrip through friends and associate etc . Also, if a QIB is sold on the issue from a long term perspective, they could come in as anchor. I also wonder at some of the brave QIB’s who come in as anchor investor at the kind of pricing that is prevalent. Perhaps, in a bull market, the Institutional buyer is more foolhardy and under pressure to perform. The participation level of retail vis a vis the institutional buyers in recent IPO’s clearly shows that the former is smarter.

The paper has carried some parts of my response in its write up which appears here:

The IPO debate will not die down. I maintain my stance" AVOID IPO's. THEY ARE INJURIOUS TO YOUR FINANCIAL WELL BEING".

No comments: