Funds anchor IPOs, then sail off after debuts

In an attempt to cash in on the steep rise in share prices of some recent debutants, mutual funds (MFs) have sold shares in these.

MFs sold 4.3 million shares in small finance bank licensee Ujjivan Financial Services in June, bringing their total holding to 9.6 million shares, data from Value Research show. In Manpasand Beverages and InterGlobe Aviation, MFs offloaded around 742,000 and 310,000 shares, respectively, in June.

The reduction in holding was more gradual in others. In Prabhat Dairy, for instance, MFs owned 3.4 million shares in June, nearly half the six million shares held in October last year. In SH Kelkar, their holding was down to 3.18 million shares in June from 4.6 million at the end of December.

MFs typically look to stay invested for about two years in individual stocks and have no regulatory lock-in requirement, except if they put money as anchor investors at the time of an initial public offering (IPO). Anchor investors cannot sell their shares for 30 days from the date of allotment, while IPO investors can sell them on listing day. "Selling is a call that fund houses take depending on price movement and valuation matrix. If a recently listed stock has run up significantly, there is no reason to not offload some shares," said Sunil Singhania, chief investment officer, equity, Reliance MF.

Other debutants have seen a rise in holding. In Equitas, MF holding has risen from 84.7 million shares at the end of April to 90.3 million by June-end. In Syngene International, on the other hand, shareholding rose from two million to 3.73 million within two months of listing. It then fell to 529,000 over the next seven months, before jumping to 2.4 million in June.

Except for Prabhat Dairy, all these debutants are currently trading above their issue price, with the highest gains being notched up by Manpasand Beverages (108 per cent), followed by Ujjivan Financial Services (94 per cent), Syngene International (66 per cent), and Equitas Holdings (60 per cent). In fact, 17 out of the 26 firms that listed in the past year are trading above their issue price.

Experts say some recent IPOs have been quality issuances, which have attracted MF money. Most big fund houses, such as HDFC MF, Reliance MF, UTI MF, ICICI Prudential MF and SBI MF, have been active investors in IPOs, they said.

"We rely on our robust internal research to decide on which IPOs or recently listed companies to invest in. Our main concern is getting in at right valuations and creating value for our investors," said Dinesh Khara, chief executive offcier, SBI MF.

So far this year, MFs have invested about Rs 9,700 crore in stocks, according to Sebi data, adding to the Rs 72,000 crore invested last year.

Equity schemes have seen inflows of about Rs 8,800 crore this calendar year.

"Equity schemes have seen consistent inflows of about $1 billion every month, both by way of SIPs (Systematic Investment Plans) as well as lump sum. Of this, 60-70 per cent have come into mid and small-cap funds, which have to invest in smaller companies. IPOs have provided a good avenue to deploy this money," said Manoj Nagpal, CEO, Outlook Asia Capital.

Since January 2015, MFs have invested about Rs 2,900 crore as anchor investors in IPOs. Among recent issues, fund houses invested around 100 per cent of anchor book allotted for Precision Camshafts. In value terms, Equitas Holdings (Rs 442 crore), Ujjivan Financial Services (Rs 170 crore) and Teamlease Services (Rs 114 crore) garnered the most investment, data from Prime Database show.

Anchor investors are institutional investors who subscribe a day before an IPO is thrown open to the public and have to adhere to a 30-day lock-in.