Anchoring Public Offers

If smoke indicates fire; a rising stock market indicates a flood of initial public offers (IPOs). With the stock markets going up over the past one year, small and midcap companies are finding ways to capitalize on the buoyant sentiments and going public. Not to be left behind, mutual funds are also flogging the IPOs that have been floated in recent times. Mutual funds enjoy the qualified institutional buyers (QIB) status and have the benefit of a higher allotment of shares going up to 50 per cent of the issue size. This, however, does not guarantee allotment. The concept of anchor investor is fast catching, among mutual funds as it guarantees them allotment up to 30 per cent of the QIB portion or 15 per cent of the issue size. Industry experts and fund managers said that the advantage a fund gets by being an anchor investor is firm allocation of shares. This helps in planning its investment and allocating funds accordingly. Jagannadham Thunuguntla, equity head, SMC Capital, said; “IPOs are getting over subscribed 30-40 times, resulting in low allocation. Mutual fund schemes usually need higher allocations and that is why they are going the anchor investor route.” It is common knowledge amongst investors the gains of investing in an IPO that allows investors to exit on listing day by profiting from the listing day gains. This is where anchor investors lose out. Anchor investors cannot sell their allotted shares for the first 30 days from listing. They also do not enjoy any price advantage. On the contrary, if their quoted price for the issue is l