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Investors get choosy in primary markets.

Questions arise on success of fresh share issues as NTPC follow- on offer fails to excite

WHEN NTPC's follow- on offering ( FPO) failed to attract healthy response while the initial public offerings ( IPOs) of two relatively unknown companies -- ARSS Infrastructure and Infinite Computers -- evoked strong response from several sections of investors, it led to questions about the investor psyche in the primary market ( where fresh shares of companies are offered for subscription).

While the NTPC FPO barely scraped through with the help of public sector insurance companies, ARSS Infrastructure, a mid- size company, received bids for 127 times the issue size and Infinite Computers was oversubscribed.

However, it has proved one thing -- that investors are not shunning the primary market as a whole -- they are just choosy about their picks.

In terms of financials, NTPC is far ahead in sales and net profit at Rs 44,245 crore and Rs 8,093 crore respectively, compared to Rs 628 crore and Rs 51 crore for ARSS Infrastructure, respectively, and Rs 496 crore and Rs 45 crore, respectively, for Infinite Computers.

" Just looking at these numbers, one may feel it is very difficult to comprehend the behaviour of the primary market at times. And public issue subscription levels can be quite chaotic," said Jagannadham Thunuguntla, headequities of SMC Capitals, who, in a study, compared the subscription figures of these issues by various investor classes.

The striking revelation of the study is that the absolute demand in the IPOs of Infinite Computers and ARSS Infrastructure under the foreign institutional investor ( FII), mutual fund, high networth individual ( HNI) and retail categories was far higher than that of the NTPC FPO. However, in the domestic institutions category the NTPC offering witnessed greater demand than the other two companies.

For NTPC, the total value of bids under the FII category was Rs 373 crore. However, the total value of FII bids for Infinite Computers was Rs 1,940 crore, that is, almost 5.2 times that of the NTPC offering. Similarly, the IPO of ARSS Infrastructure received bids for Rs 2,020 crore, that is, almost 5.4 times the NTPC issue.

In the case of the NTPC issue, the total value of bids under the mutual funds category was to the tune of Rs 561 crore. However, for Infinite Computers the bids totalled Rs 739 crore while for ARSS Infrastructure it was Rs 552 crore. The trend was the same in the case of HNIs too, with the three companies receiving bids for Rs 531 crore, Rs 3,018 crore and Rs 1,408 crore, respectively. Bids from the retail category stood at Rs 472 crore, Rs 736 crore and Rs 629 crore, respectively.

For the issue, NTPC adopted the French model against the by- now- popular book- building process. Under the French model the base price is given and the final price is arrived at based on the bids, while in the latter, a price range is given for bidding. Some investment bankers blamed the choice of model for the problems faced by the NTPC issue, saying the French model imposes limitations on institutional investors.

Some investment bankers blamed the high pricing of the NTPC offering even as they found it difficult to explain the attractiveness of relatively unknown companies. For investment purposes, FIIs generally do not favour public sector companies as their performance depends on government policies.

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Publication:Mail Today (New Delhi, India)
Date:Feb 20, 2010
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