Investors look to open offers for better returns in falling market

Amitabh Pandey, a small investor from Baroda, saw the value of his Rs 20-lakh portfolio erode by 35 per cent due to a dipping stock market. But an open offer helped him cut his loses by half.

Here is how: Pandey had bought 1,000 shares of Flat Products Equipments India at Rs 14 six years ago. In January, a multinational company "" Cockerill Maintenance and Ingeniere SA "" offered to buy 600 shares at Rs 517 a share. 

ATTRACTIVE PRICE TAG
Company	Open offer price
Ranbaxy Labs	Rs 737
Gokaldas Exports	Rs 275
Lanxess ABS	Rs 201
Investment by funds in the above mentioned stocks: Ranbaxy Labs: UTI Opportunities, UTI Dividend Yield, DSP ML Balanced Fund, Sundaram BNP Paribas Tax Saver Gokaldas Exports: ICICI Prudential Equity and Derivative Income, Birla Tax Plan, DWS Money Plus Advantage Lanxess ABS: Principal Dividend Yield, Principal Growth Fund

Like Pandey, investors are increasingly looking at open offers as a lucrative option to save the value of their portfolios in a bearish market.

The Bombay Stock Exchange's (BSE) benchmark index Sensex has fallen 7006.55 points or 33.18 per cent from its peak in January.

More recently, Japanese drug maker Daiichi Sankyo came out with an open offer for Ranbaxy Laboratories at a price of Rs 737 a share. This price was a 53.5 per cent premium to the average daily closing price of Ranbaxy on the National Stock Exchange for the three months ended June 10 and 31.4 per cent to the June 10 closing price.

Pandey again bought 1000 Ranbaxy shares 12 days after the announcement for Rs 519.64. He is sure he will make at least 10 per cent on his investments by November when the open offer starts.

"If the Japanese company (Daiichi Sankyo) asks for more shares, it will be a bonus," said Pandey.

Not only retail investors, but big institutional investors are also eyeing open offers as a way to boost their net asset values in a falling market. Harsha Upadhyay, vice-president and fund manager with UTI Mutual Fund, said, "In the current market situation, even if a single stock in the portfolio outperforms, it is sufficient to deliver returns at par with the index, if not more."

Other funds that bought the Ranbaxy stock in June include DSP Merrill Lynch Equity, Kotak Opportunities fund and UTI Dividend Yield Fund.

"As in the case of Ranbaxy, the returns may not be high if the acceptance ratio in open offers is small. But, investors value even a 16 per cent (annualised) return and don't want to miss out on it. Some investors even make marginal money on trading of shares after the announcement," said the head of research of a broking firm. Investors said they have made similar small gains in the case of the open offer from Gokaldas Exports.

Even fund houses such as ICICI Prudential and Deutsche Asset Management Company actually increased their holding in Gokaldas just before the open offer in January. The funds sold off the entire holding post the offer.

Lanxess ABS too saw a similar trend. Principal PNB Mutual Fund that entered the stock just before the open offer sold most of its holding in the month the open offer was announced.

"Open offers do act as a cushion in a falling market but a fund or an investor can't build a portfolio around such companies. The investor enters the stock because of surety of returns. He knows that the price will not go below the offer price," said a fund manager, who did not wish to be quoted.

Hitungshu Debnath, executive director-distribution and wealth management services at Angel Broking suggested that before getting into an open offer an investor should look at the cost of holding and the future prospect of the company.