Small funds to complain on IPO allotment to Sebi

Smaller fund houses want a change in the rules on allocation in Initial Public Offers (IPOs) of equity.

Some of them say preference in the anchor investor portion is given mostly to larger entities. Those not among the top 15 rarely get any.

The issue is to be raised on Tuesday with the markets regulator, Securities and Exchange Board of India (Sebi). According to sources, Ajay Tyagi, the latter's chief, has called a meeting of MF chief executives.

Any fund house may apply in an IPO in the Qualified Institutional Buyer (QIB) category, where allotment is made on a proportionate basis. Typically, half the issue size is reserved for QIBs. The bone of contention is the anchor allotment, where investment banks and the issuer usually decide whom to allot. Up to 60 per cent of the QIB portion may be allocated to the so-called anchor investors. While MFs compulsorily have to be allotted some part of the anchor book, the smaller ones say only the bigger fund houses get this.

"If you look at recent allocations, only the bigger MFs have got allotments. We plan to raise this issue with Sebi," said the head of a fund house, requesting not to be named.

The recent stellar listing of Avenue Supermarts, the company that operates the D-Mart retail chain, seems to have miffed the smaller entities. Shares of the company had more than doubled on listing. Beside Motilal Oswal AMC, only top-ranked fund houses had managed an allotment in the anchor portion of the IPO.

Similarly, the five biggest IPOs since 2016 showed preference to mostly bigger entities, shows the data.

There are 42 asset management companies, together managing assets worth Rs 18 lakh crore. And, close to Rs 15 lakh crore (more than 80 per cent) is managed by the top 10 fund houses.

Investment bankers say a preference to the bigger players is necessary to infuse confidence in an IPO issue. "It is not that smaller firms are shunned. Anchor investors, by definition, are supposed to be marquee names, as they are supposed to instil confidence in the IPO. Also, investors which can commit for the longer term are usually given preference," said one.

The average listing day gain for IPOs since 2016 is 18 per cent. And, the BSE exchange's IPO index, a gauge for the post-listing performance of a company, has delivered 43 per cent, compared to 15 per cent by the benchmark Sensex, in the past year. Which adds to the smaller MFs' vexation.