2011 to see a deluge of public issues, returns remain a concern

India Inc is set to mobilise over Rs 1,40,000 crore through public issues in the new year. The collections were Rs 1,05,647 crore in calendar year 2010.

Based on the 100-odd applications filed with the Securities and Exchange Board of India, the private sector is expected to raise Rs 65,000 crore, indicate a research report by SMC Global Securities. Of this, 35 have already got the regulator’s approval.

The government will also raise Rs 50,000 crore in the first three months of the new year. This includes Rs 19,000 crore from the follow-on public offer of Indian Oil Corporation, and the remaining from SAIL, ONGC and Hindustan Copper. The final figure for the full calendar year will be much more as the government is expected to announce a new target in next year’s Budget. Add to this the Rs 25,000 crore expected from the rights issues of State Bank of India and others.

In 2010, the public issue market saw a huge appetite from foreign investors and high net worth individuals for fairly priced issues. Retail investors joined in later, but mainly for public sector issues led by Coal India. The private sector was not as lucky.

The returns, however, from investment in these public offers failed to keep pace with the subscription enthusiasm. Average returns at the end of the year was a paltry 9 per cent. Though the follow-on public offers (FPO) worth Rs 31,577 crore, mostly from the public sector companies, were well received in the capital market, the year to date average returns has been a miniscule 5 per cent.

As many as 151 companies entered the capital market in 2010 to mobilise over Rs 100,000 crore, of which only 14 made investors happy with an appreciation of over 100 per cent each. Among others, 24 are trading 25-99 per cent above their offer price, while 22 are currently quoted at 10-25 per cent above offer prices. Of the 81 companies that are quoting below their issues prices, the stock price of as many as 30 issues have declined 25 per cent each.

Analysts believe that in most of the cases where investors have gained, the pricing of the IPOs has been reasonable along with good fundamentals and a strong business case. Also, most of these IPOs were oversubscribed by a good margin, leading to investors’ interest in these companies post their listing. Companies like Gravita India were oversubscribed 42 times and Talwalkar Fitness 28.2 times. Both the companies, post their listing, have more than doubled from their issue price.

Among the star performers were the Coal India IPO and Jubilant Foods (up 330 per cent over issue price). The mood turned for the better only after the strong listing of Manganese Ore India Limited.