Anchoring Public Offers | Value Research As anchor investors, fund houses are getting opportunistic as it guarantees IPO allotment

Anchoring Public Offers

As anchor investors, fund houses are getting opportunistic as it guarantees IPO allotment

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 lower than the final issue price; they have to shell out the difference. And in case the price quoted by them is higher than the price arrived by the issue after the book building process; have to forgo the additional amount they quoted.

The anchor investor trend has been in vogue for sometime, with mutual funds investing in issues such as SKS Microfinance, Career Point, Eros International and Electrosteel. And in recent days among the IPOs that are waiting to be listed, such as Ramky Infrastructure, Orient Green Power Company Ltd (OGPCL), Techpro Systems and Ashoka Buildcon; mutual funds have donned the mantle of anchor investors with aplomb. Fund houses that have been part of IPO investing as anchor investors include Birla Sun life, Axis Mutual, Religare, Sundaram BNP Paribas, ICICI Prudential, DSP BlackRock, Fidelity, Franklin Templeton Mutual Fund etc.

Strong fundamentals
IPO investing is tricky; one has the option for instant gratification with listing day gains or wait for the stock to appreciate over time and emerge as the next big enterprise. For retail investors the risk of investing in IPOs that have anchor investors is low; as the experts have vetted the fundamentals and are sure of the company's financial prospects. J Venkatesan, equity fund manager, Sundaram Mutual Fund, told Value Research that the investments in IPOs are done after proper due diligence. “We have invested only in IPOs of companies with good fundamentals,” he said. The NSE and BSE websites have the information on upcoming IPOs and the anchor investors in them. This can be a first step before small investors make the decision to invest in the IPO.

The other step that investors can adopt is to check the grade assigned to IPOs, which is mandatory. Though the grade does not indicate a buy decision or guarantee a listing day gain; it confirms that whatever the company declares in its prospectus is true and correct. The grade is assigned by credit rating agencies and is in on scale of 1 to 5. A higher grade indicates better compliance by the company. These are two simple ways to ensure you are investing an IPO that has the necessary institutional mandate.

The top 5 performance IPOs (Table to come in)

5 most recent IPOs and their listing gains
IPO  Listing day  Listing price (Rs)  Listing day gain (%)  One-month gain (%)
Gujarat Pipavav Sep-09 46 17 -
Prakash Steelage Aug-25 110 68 33
Bajaj Corp Aug-18 660 15 10
SKS Microfinance Aug-16 985 6 36
Hindustan Media Ventures Jul-21 166 14 10
Aster Silicates Jul-28 118 73 -46
Source: NSE

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