By Yash Saxena
Days after the Initial Public Offering (IPO) of public sector undertaking Hindustan Aeronautics Ltd (HAL) was subscribed, just around 50 percent till the third day of its offer, market volatility had claimed another victim. On the following Monday, the IPO of ICICI Securities Ltd was subscribed at just 88 percent including the portion set apart for anchor investors. ICICI Securities Ltd IPO is the first public offer by a research and brokerage firm associated with a commercialized bank in India.
Checkmating high expectations
The overall picture was not so encouraging even as shares reserved for the institutional investors were oversubscribed by 4 percent. Bids from the institutional investors were received for 22,949,528 shares when the offer was of 22,016,111 shares. ICICI Securities Ltd, which is the parent company of ICICI Direct, had expected to raise up to Rs 4,017 crore from this IPO at the upper end of the price band of Rs 520 in the three-day bidding process.
Instead, the firm could raise only around Rs 3,500 crores from the issue which was open from 22 to 26 March 2018. According to the National Stock Exchange (NSE), the brokerage received total bids for 3,46,75396 shares as against the total issue size of 442,25,343 shares.
Anchor investors are institutional investors to whom the shares in an IPO are offered a day before the issue opens to the public. This is to ascertain the mood of the market as the shares bought by these anchor investors signal the magnitude of demand for the IPO. An anchor investor has to put in a minimum of Rs 10 crore in an issue. The anchor investors, in this case, had poured in Rs 1,717 crore a day before the IPO. This was an indication of strong market enthusiasm for it. As many as 58 anchor investors including heavyweights such as Blackrock, IDFC Premier Equity Fund, L&T Mutual Fund Trustee, Reliance Strategic Investments Ltd and SBI Magnum were allotted around 3.30 crore shares at Rs 520 apiece. Despite this, the IPO failed to deliver as expected.
Sluggish response from high net worth individuals (HNI)
According to data from the Bombay Stock Exchange (BSE), the retail investors’ quota was subscribed at 88 percent, non-institutional investors at 35 percent and the Qualified Institutional Buyers (QIB) 1.04 times. The High Net Worth Individuals (HNI) subscribed to just 36 percent of the portion allotted to them and consequently, the ICICI shareholders had to put in bids for one-third of the portion reserved for them. Analysts are of the opinion that a volatile stock market in the backdrop of ‘investor caution about rich valuations‘ is the main cause of the IPO remaining under-subscribed. Further enforcing the aforementioned, some analysts indeed opine that the valuation of ICICI Securities was intrinsically expensive, to begin with. According to full-service broking house Centrum Broking, at Rs 520 per share which is the upper end of a narrow range, the IPO was priced at nearly 50 times its 2016-17 earnings and more than 34 times the book value.
The writing on the wall
The under subscription of this IPO of ICICI Securities Ltd, which is the fourth public issue from one of India’s largest financial conglomerates, ICICI group is a wake-up call to reinforce the fact that the stakes involved are high and no amount of analysis can prognosticate the market sentiments accurately. What is being analysed here are all the whims and fancies of the market which are influenced by a plethora of factors having no straitjacket formula.
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