IPO investors burn fingers, get poorer by Rs 29,000 cr

If you thought of making some quick money by buying into initial or follow-on public offers made by companies, you know how it hurts by now. With almost two-thirds of the IPOs trading below their listing price, a large chunk of investor wealth amounting to Rs29,000 crore has been wiped out.

[caption id=“attachment_72968” align=“alignleft” width=“380” caption=“The uncertainty in the financial markets, coupled with low returns, has kept investors away and this was evident in the IPO subscription level which was quite tepid. Reuters”] [/caption]

Not surprising then that Corporate India’s fund-raising plans seem to have gone slow in 2011 compared to the previous year. The uncertainty in the financial markets, coupled with low returns, has kept investors away and this was evident in the IPO subscription level which was quite tepid. Only two companies managed to generate huge investor interest, viz. Lovable Lingerie and Muthoot Finance were subscribed 30.10 times and 20.95 times, respectively.

Firstpost did an analysis to find out the quantum of funds raised by companies this year and we came up with the following. In our analysis, we found out that only 31 companies had raised funds worth Rs13,577 crore till August end, a small amount compared to the total of Rs75,070 crore raised by 75 companies last year.

Clearly, corporates are not very keen on tapping the markets and only those who are in dire need of funds or have very strong fundamentals are entering the market. In fact, even the FPOs by PSUs have been consistently delayed for quite some time now. PK Misra, Secretary, SAIL, told reporters at at CII conference that “it has to be at the appropriate time when the stock market is in a stable condition. Right now, the stock market is still going down, up and down… We shall intend to go through with the FPO issue this year”. Even ONGC and IOC plans of raising Rs11,500 crore and Rs15,000 crore have been deferred on similar issues.

Only two companies had raised money through the FPO route in 2011. Power Fin Corp and Tata Steel had raised Rs4,578 crore and Rs3,477 crore, respectively. Even among the IPOs, the amount raised was quite small, with only three companies raising funds in excess of Rs500 crore. The biggest IPO was by L&T Finance (Rs1,245 crore) followed by Future Ventures (Rs750 crore) and Muthoot Finance (Rs901.25 crore).

2010 was an exceptional year as Corporate India had recovered from the crash of 2008 and markets were near their all-time peak. The year also saw the Rs15,199.44-crore IPO of Coal India, the biggest in Indian history so far.

Going ahead, the outlook for IPOs does not look too rosy until we see some stability at the global economical level.