HNIs' bets on HDFC MF IPO will pay off if shares list at over 35% premium

Leveraged bets worth over Rs 700 bn riding on the IPO; break up cost at Rs 1,500 versus issue price of Rs 1,100

Leveraged bets riding on the maiden offering of HDFC Mutual Fund will only be profitable if shares of the asset manager list at over 35 per cent premium during the debut next week. Cumulative bets worth over Rs 700 billion from high-net-worth individuals (HNIs), who have borrowed at a rate between 12 per cent and 14 per cent per annum, have been placed on the company.       

HDFC MF's Rs 28-billion initial public offering (IPO), which closed on Friday, was oversubscribed more than 80 times. The issue garnered total bids worth Rs 1.7 trillion, the second-most for a domestic IPO after Coal India.

The HNI portion of the IPO was subscribed 195 times, which means an investor applying for shares worth Rs 195 million will get an allotment of only Rs 1 million. 

The cost of acquisition, including interest charges, for HNIs works out to around Rs 1,500 per share, versus the issue price of Rs 1,100 per share.

Interestingly, the bets by wealthy investors might still be fruitful if the grey market premium is anything to go by. Grey market operators expect shares of HDFC MF to list with gains of around 40 per cent.

"HNIs have placed very calculated bets. Shares of HDFC MF were changing hands at around Rs 1,500-Rs 1,700 per share at the time of the IPO. If the strong momentum in the market continues, wealthy investors will have decent returns despite high break-even cost," said an investment banker.

Industry players said that non-banking finance companies (NBFCs) had already readied a decent corpus in anticipation of the huge demand for the HDFC MF IPO.

"NBFCs typically don't mind loosening their purse-strings if the IPO has such a credible management and group backing. HNIs had missed out on the HDFC Standard Life Insurance IPO, which had seen decent post-listing gains. They didn't want to miss out on another IPO from the HDFC group," said Dara Kalyaniwala, head of investment banking at Prabhudas Lilladher.

Experts see pent-up demand from institutional investors driving up the stock price. The institutional investor portion of the IPO was subscribed 192 times. As only a few investors got limited allotment in the anchor portion, most of them placed large bids in the IPO, said experts. 

"The IPO saw a huge demand from institutional investors, who might come back for more shares on the listing day. HNIs took this into consideration as well before placing their bets," said Chintan Kotak, vice-president, IIFL Securities. 

Market players said that global investors saw HDFC MF as a proxy to play the growth in the domestic mutual fund industry. 

The increase in the share of financial assets in household savings and the rising preference for investing through mutual funds have given an impetus to the domestic asset management industry.

The assets under management (AUM) for the mutual fund industry has nearly doubled in the past two years, from Rs 12 trillion at the end of 2015-16 to Rs 23 trillion at the end of 2017-18.

HDFC MF is the country's second-largest fund house in terms of AUM. The asset manager scores over other players with the highest equity base, retail investor count and profitability.  

Riding the wave

.	On offer		Bids received		.
Category	No of shares (million)	Amount (Rs billion)	No of shares (million)	Amount (Rs billion)	Subscription (x)
QIB*	4.4	4.8	852.8	938.0	192.3
HNI	3.3	3.7	649.2	714.1	195.1
Retail	7.8	8.5	50.4	55.5	6.5

  

Source: NSE & BSE 

Note: X is no of times 

Calculated on basis of issue price of Rs 1,100  
* excludes anchor book