IPO 2011: Year-end review

Out of the 37 IPOs that were launched this year, just Rs6,044 crore has been raised. The number of IPOs launched this year matches that of 2008, however, the amount raised that year was much higher due to the IPO of Reliance Power which raised Rs11,563 crore by itself

Out of the 37 IPOs that were launched this year, just Rs6,044 crore has been raised. The number of IPOs launched this year matches that of 2008, however, the amount raised that year was much higher due to the IPO of Reliance Power which raised Rs11,563 crore by itself For the year 2011 there have been 39 public issues, out of which two were follow-on public offers (FPOs) and the rest were Initial Public Offers (IPOs).With regard  to performance of the IPOs, Moneylife has written about the manipulations, price rigging and erratic price movement taking place in some of the IPOs launched in the course of the year.

This has been the story every year. But compared to last year, IPO numbers have fallen. According to data compiled by, there were 64 IPOs last year, raising a total of Rs36,362 crore. The figures have fallen drastically this year. Out of the 37 IPOs just Rs6,044 crore has been raised. The number of IPOs launched this year matches that of 2008, however, the amount raised that year was much higher due to the IPO of Reliance Power which raised Rs11,563 crore by itself.

According to SMC Global Securities, there were only three public issues for the year 2011 with issue sizes above Rs1,000 crore. This is sharply down from the 2010, when there were 14 public issues above Rs1,000 crore. Out of the 37 IPOs, 17 public issues were small ones with issue sizes below Rs100 crore.

The quality of IPOs launched this year has been sub-standard. According to Moneylife Research, just 15 IPOs out of the 37 IPOs launched this year were graded with fundamentals being average and above. Sixteen were given a rating of ‘Grade 2’ signifying below average fundamentals and six were rated ‘Grade 1’—poor fundamentals. The companies with above average fundamentals (Grade 4) were PTC India Financial Services, Muthoot Finance and TD Power Systems. L&T Finance Holdings was rated ‘Grade 5’—strong fundamentals and joined the league of Coal India and MOIL which were given the highest rating last year. A ‘Grade 5’ rating has been given to Multi Commodity Exchange of India (MCX India), the highly awaited public issue of is yet to open.

Seeing this quality of IPOs, subscription has been pathetic, as well. According to SMC Global, about 26 public issues have not even seen one time subscription under the Qualified Institutional Buyer (QIB) category. That is around 67% of the issues. This clearly reflects lack of conviction and confidence in the QIB circles about the IPOs during this year. Surprisingly, HNIs and retail had shown unusually high levels of risk appetite as far as IPO investing is concerned during the calendar year 2011. Their risk was rewarded by commensurate positive returns in few public issues, but many public issues have given significantly negative returns.

So, which has been the most attractive IPO of 2011? Surprisingly, or rather not surprisingly, Lovable Lingerie has been the hot favourite this year with an overall subscription being 30 times over-subscribed. The undergarment manufacturer which was rated having ‘average fundamentals’, was over-subscribed in all categories and even more than that of Coal India and L&T Finance. HNI subscription was an outstanding 99 times, whereas retail and QIB was a little moderate at 21 times. The only other IPO that was able to come close in terms of subscription was Muthoot Finance with an overall subscription of 21 times.

However, retail interest on the finance company fell. The ‘Grade 4’ IPO was subscribed just 8 times by retail investors. Major subscription came from QIBs and HNIs with 25 times and 61 times subscription, respectively. The subscription to these IPOs has been rather high considering the next highest in terms of overall subscription was Timbor Home, which was over-subscribed 5.78 times.


How safe is investment in financial gold?

Recent events in the US should be a cause for worry for those who have been investing in paper gold

Gold has been attracting huge amounts of money in recent times with the metal having risen from around $250 per ounce to about $1,600 now. Investment in gold is supposed to be to a protection against inflation and severe negative events. But what if gold itself is unsafe in the new financialised world in the very system you believe in? While this seems unlikely, given our faith in market structure and regulations, certain events of the last few days have got many savvy US investors worried.

Grant Williams, a fund manager recently wrote in his newsletter (Things That Make You Go Hmmmmm), an interesting analysis of the extraordinary activities in the gold futures markets which can cause a market breakdown and a loss of faith in the capitalistic system, the bedrock of which is ownership right.

Recently, MF Global had filed for bankruptcy. According to the Mr Williams, the bankruptcy trustees had decided to pool all the various customer assets, including gold warehouse receipts which are considered safe, in order to make good on the last minute margin call.

According to weekly newspaper Barron’s, the trustee overseeing the liquidation of MF Global has proposed dumping all remaining customer assets—gold, silver, cash, options, futures and commodities—into a single pool that would pay customers only 72% of the value of their holdings. In other words, while traders already may have paid the full price for delivery of specific bars of gold or silver and hold “warehouse receipts’ to prove it they’ll have to forfeit 28% of the value.

This was an extraordinary step. An exchange, such as COMEX, where gold futures are traded, provides the framework to which its members are supposed to strictly adhere to, for the safety of all parties involved. In other words, exchanges essentially provide insurance from counterparty risk. In any regulated market, investor protection is of paramount importance and the rules ensure that consumers are treated fairly. But the actions of MF Global, a newly bankrupt entity, have made it impossible to continue with this belief, according to Mr Williams and a few others.

If a firm needs to meet a margin call, it needs to be paid from the firm’s accounts and not the investors’ accounts. MF Global presumably had no cash of its own, so it used its customers’ money to fulfil its own obligations. Hence, the $100 of warehouse receipt of gold bullion thought to be safe in the futures market warehouse, vis-a-vis the bankrupted firm, is now worth at least $72, not due to underlying fundamentals of gold.

Interestingly, the selling in gold and silver accelerated before this announcement by the trustee. Gold had crashed from $1740 an ounce to $1590 per ounce, an 8.5% decline, in a matter of days before the news of MF Global’s gold sales came out. In effect, physical gold and silver as well as COMEX warehouse receipts (which are as good as physical ownership) were pooled by the trustees and sold at a price that have already sharply fallen in the futures market!

Did some powerful forces, knowing that the MF bankruptcy trustees are going to sell gold belonging to customers, sell in advance? To add further insult to injury, MF Global supposedly charged its bullion customers for “storing” gold when in effect it had stolen the same from them and sold it. Double whammy.

The exact details of what transpired between the bankrupt firm and the unknown parties, through COMEX, are unknown. It seems even COMEX is clueless and is scrambling, at the moment, to find out what actually happened and how the transaction slipped through. Commentators wonder if COMEX was involved. They certainly hope not.



bhadresh r shah

5 years ago

Can this happen in india ?

because our ETF's are trustees not owner


bhadresh r shah

Merchant MS

5 years ago

Buy, feel touch gold. The mere touch takes you to seven heaven. Check for purity and see hallmark logo. ETFs difficult to digest.


5 years ago

Buy physical gold rather than gold etf. Mutual funds don't know what they are selling

Share prices in an oversold zone: Tuesday Closing Report

The market may move lower but a short rebound is round the corner

Political developments at the Centre kept the market volatile throughout the session and resulted in the indices closing lower for the fifth straight day. The fall in the past three days was on a declining volume. Today the National Stock Exchange (NSE) saw a volume of 57.07 crore shares. Last hour panic-selling resulted in the Nifty hitting the maximum low since 21 August 2009—at 4,531. At present the market is in an indecisive zone. Further move will depend on any major events.

The market opened higher tracking a firm trend in the Asian region in morning trade. Bargain hunting amid the four-day decline helped the indices open in the positive. The Nifty started the day at 4,636, up 23 points, and the Sensex resumed trade 57 points higher at 15,436. Buying in power, healthcare, oil & gas and PSU sectors supported early gains.

The benchmarks hit their intraday high in early trade with the Nifty rising to 4,637 and the Sensex scaling 15,448. However, profit booking crept in at higher levels which pushed the market into the negative. The indices remained range-bound till noon, after increased selling pressure caused the market to venture further southward.

However, intermittent buying enabled the market venture into the green. But the recovery was short-lived as the indices entered the red once more. A huge bout of selling in the last hour pushed the market to the day’s low. At the lows, the Nifty fell to 4,531 and the Sensex tumbled to 15,136. Over selling led the Sensex and the Nifty to close at more than two year closing low of 15,175 (down 204 points,1.33%) and 4,544 (down 69 points, 1.49%).

The advance-decline ratio on the NSE was in favour of the losing stocks at 437:1268.

Among the broader indices, the BSE Mid-cap index tanked 1.86% and the BSE Small-cap index declined 1.45%.

In the sectoral space, BSE Fast Moving Consumer Goods (up 0.37%) was the lone winner. The losers were led by BSE Capital Goods (down 3.50%); BSE Metal (down 3.48%); BSE Realty (down 2.71%); BSE Power (down 2.59%) and BSE Auto (down 2.44%).

The best performing stocks on the Sensex were ONGC (up 2.39%); HDFC Bank (up 1.98%); ITC (up 1.11%); HDFC (up 0.69%) and Hindustan Unilever (up 0.16%). The top losers were Jaiprakash Associates (down 7.26%); Tata Steel (down 5.27%); Tata Power (down 5.23%); Hero MotoCorp (down 5.16%) and Larsen & Toubro (down 5.14%).

The key gainers on the Nifty were Ranbaxy (up 3.24%); ONGC (up 2.39%); HDFC Bank (up 2.32%); ITC (up 1.19%) and BHEL (up 0.90%). JP Associates (down 8.23%); Hero MotoCorp (down 6.19%); L&T (down 5.90%); Tata Steel (down 5.72%) and Tata Power (down 5.67%) emerged as the top losers on the index.

Markets in Asia closed mixed as tensions relating to North Korea eased but investors were cautious on account of the Eurozone debt crisis. Optimism in the US economy also supported investor sentiments.

The Hand Seng added 0.06%; the Nikkei 225 gained 0.49%; the Seoul Composite surged 0.91% and the Taiwan Weighted rose 0.44%. On the other hand, the Shanghai Composite shed 0.10%; the Jakarta Composite fell 0.48% and the Straits Times lost 0.14%.

Back home, foreign institutional investors were net sellers of stocks totalling Rs450.37 crore on Monday. On the other hand, domestic institutional investors were net buyers of shares amounting to Rs18.60 crore.
BEML has won an order worth Rs318 crore for the Metro rail project in Jaipur. The public sector company will supply 10 train sets of four cars each, totalling 40 cars for the project, it said on Tuesday. It is also expecting further Rs60 crore worth of orders for the Jaipur Metro project. The stock gained 1.40% to close at Rs468.50 on the NSE.

Infosys BPO, the business process outsourcing subsidiary of Infosys, has inked a definitive agreement to acquire all the outstanding share capital in Australia-based Portland Group, a leading provider of strategic sourcing and category management services. The acquisition is expected to be completed by early January 2012. The purchase consideration for the deal is AUD37 million, subject to customary post-completion adjustments.  The stock fell 0.01% to close at Rs2,676 on the NSE.

Hospital chain Fortis Healthcare (India), owned by billionaire brothers Malvinder and Shivinder Singh, is set to close the acquisition of Singapore-based group firm Fortis Healthcare International by end-December. Last month, Fortis Healthcare (India) had announced that it would buy the overseas firm for $665 million. The stock closed 0.30% down at Rs90.45 on the NSE.


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