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IPOs may be making big money for you, but uber-rich getting a raw deal; here’s how

NEW DELHI: Everyone is making money in India’s
IPO mart, but the uber-rich.
High networth individuals, or HNIs, have made their presence felt in the primary market by bidding for IPOs many times over their quota limits. But they have got the short end of the stick when it comes to listing gains.
analysis of the IPOs that hit the market between April 2016 and June 2017 showed out of 31 issuances, only 24 got listed on the bourses at a premium, with a median listing gain of 14 per cent. This is cool return for retail investors, who struggle to earn even 8 per cent in one year on bank fixed deposits But 14 per cent is not cool enough for HNIs. Here’s why!
High networth individuals usually borrow money to invest in IPOs. They deploy only a small fraction of their own capital upfront while bidding for an issue, which is the margin money. The rest is raised through short-term loans covering the period between the IPO closure and the final listing. This allows HNIs to apply for a larger quantum of shares in an IPO.
But this requires them to earn super-normal gain from an IPO listing to stay in profit. For instance, in the recent IPO of BSE-promoted CDSL, HNI interest was simply huge. Based on some back-of-the-envelope calculations, ET had reported that the issue needed to list at a 65-76 per cent premium above its issue price of Rs 149 for HNIs to make decent gains.
did list at 67 per cent premium. But that has not been the case with other issues. Among recent debutants, Avenue Supermarts saw a listing day gain of 115 per cent, Shankara Building 37 per cent and BSE 33 per cent. But CL Ediucate (down 16 per cent) and PSP projects (down 5 per cent) disappointed investors big time. The Icra study showed after factoring in interest costs, HNIs have earned positive returns in only 11 of the 24 recent IPOs. The rating agency noted that the median subscription level for the non-institutional investor (NII, which include the HNI investors) category stood at 80 times for the IPOs that hit the market in FY2017. Only two issues saw similar HNI interest in FY2016.
“Strong HNI interest in the primary market has created a market for short-term capital for these investors to fund IPO applications,” Icra said.

The IPO financing market was very vibrant in FY2017, supported by an increase in HNI interest in IPOs in quest for listing gains. While banks are not active in this segment due to regulatory restrictions, the field is dominated by non-banking financial company (NBFC) and subsidiaries of leading players in the capital markets and

management businesses, said Karthik Srinivasan, Senior Vice-President and Group Head for Financial Sector Ratings, Icra. India’s IPO financing market is pegged at an average of Rs 17,500-22,500 crore an issue, which can go up to Rs 65,000-70,000 crore in the case of large-sized issues and IPOs with very high investor interest.

Aster DM Healthcare, Cochin Shipyard, Bharat Road Network and Continental Warehousing are some of the IPOs being lined up to hit the market over the next few months. These issues have already received

approvals and are expected to be tracked closely by these investors. Srinivasan of Icra said HNI investments largely take place towards the last few hours of bidding for an issue, the extent of disparity between actual and expected subscription levels is limited.