Investors get savvy, shun blind faith in IPOs

Najaf Ishrati

May 29, 2006,
ET Markets, Mumbai

WARY investors are unwilling to be beguiled by fancy projections and tall statements of companies making IPOs and are instead indicating their circumspection by submitting bids at the lower end of the price band.
An analysis of the just-concluded four IPOs shows that the dramatic change in investor sentiments in the last few weeks has revealed itself in the defensive and conservative response to the offerings. Book managers were finding it difficult to get full subscription and most of the bids were coming in at the lower end of the band.
The situation has changed dramatically from the time when investors were hungry for new issues, almost all of which ended up getting subscribed a number of times over. Further, before the crash happened, most of the bids were coming in at the top end of the price band. On May 18, when the markets tanked 826 points, two companies, Deccan Aviation and Gangotri Textiles opened for subscription. Two more companies, Unity Infraprojects and Rathi Udyog, accessed the capital markets on May 19, the day the markets fell another 452 points.
The worst affected was Deccan Aviation, which saw a demand for only 0.76 times of the total issue at the top end, and 1.22 times the lower end. Gangotri Textiles, which drew a demand of 0.85 times at the top end, and just about filled its quota at the lower end. Rathi Udyog with demand for 92% at the top end, and 127% at the bottom. In comparison, Unity Infraprojects did relatively well drawing bids 2.05 times the number of shares offered at the top end of the price range and 2.36 times the lower.
Patel Engineering, which was the last issue to close (May 9) before the crash, saw 2,641% or 26.4 times shares offered at the top end. DS Kulkarni’s follow on offer (May3) attracted bids 33.7 times the shares offered at the top end. The jinx might be drawing to a close as Prime Focus, which currently has its IPO open, hardly sees any difference in the demand for shares between the two ends of the price bands.