No returns for issues with over 50-times QIB subscription
Those public issues with over 50-times subscription by qualified institutional buyers (QIBs) do not guarantee returns in the long run, higher than their listing premium, a study by Mumbai-based Edelweiss Securities said.
By Nishanth Vasudevan, TNN |
MUMBAI: This could be disappointing for those longer-term investors, who partly base their investment decisions in public issues on the extent of institutional subscription.
Those public issues with over 50-times subscription by qualified institutional buyers (QIBs) do not guarantee returns in the long run, higher than their listing premium, a study by Mumbai-based Edelweiss Securities said.
Last year, public issues with 30-50 times subscription have recorded the maximum gains beyond a month of listing, but those with over 100-times subscription have clocked the highest returns on the listing day, the study, which measures the impact of QIB subscription levels on IPO performances, said.
Investors, especially the small retails, look up to QIBs for direction in IPO investments because they are perceived to be better informed about the prospects of the company, compared to the pricing. However, dependence on the trend in QIB investments can be misleading, as the applications could be mostly from ‘friendly institutions’, which have been approached to bloat the subscription in this segment.
Also, QIBs are known to withdraw their applications in the last minute, as they need to deposit only 10% of the total application amount at the time of submission. Kotak Mahindra Capital COO-investment banking S Ramesh feels the data could be just coincidence. “Rather than this approach, it would be better to look at the subscription levels across the board,” he said.
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As per the Edelweiss study, 61 of the 96 IPOs (63% of the total IPOs) in calendar year 2007 debuted in premium, against 54 out of 75 IPOs (72%) in 2006. Other investment bankers feel that investments in IPOs, based on subscription levels, would not be the right method going ahead, though on several occasions, this approach might have enabled deliver strong returns in the last couple of years.“Trend in the secondary market and expert advice on the issue pricing should be taken into account, as in the past shares have tanked on listing because of the weakness in the secondary market,” said the head of investment banking in a European investment bank.
Investments into public issues by most retail investors in recent years have been mainly on hearsay or hunch, rather than any independent homework, due to their aversion to pouring through the pages of the lengthy red herring prospectus.
Now a tip for QIBs, based on the Edelweiss study, “Sectors, where retail subscription (as a proportion of total subscription) was high, have generated negative returns over the long term. Listing premium in those sectors did not fare very well,” the brokerage said.
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