The Hindu Business Line : Tough call for retail investors

AFTER the spectacular success of the initial public offering (IPO) of Maruti Udyog Ltd (MUL), there was a near vacuum. And now, there's a deluge. Far too many for comfort - - for both the Government and the retail investor.

Spread over a fortnight from February 20 to March 5, as many as five major IPOs - that of IPCL, CMC, IBP, GAIL and ONGC - have been lined up. And, owing to end-of-fiscal considerations, the public issues have been bunched so close together that the average retail investor cannot take advantage of rollover of his funds.

In effect, a retail investor with limited resources in hand, who participates in the IPO for any of the five issues, will have to arrange fresh funds if he wishes to subscribe to any other. For instance, take the case of an investor who has gone in for the IPCL issue, the first in the line-up that is open for subscription from February 20 to 27. He will not be able to roll over his funds for participating in even the last of the IPOs, that of Oil and Natural Gas Corporation (ONGC), which will be open for subscription from March 5 to 13.

The reason is simple. Even the first and the last IPO, that of IPCL and ONGC, are so closely bunched together that the refund amount from IPCL, even on partial or nil allotment of shares, will not be in hand in time for investment in ONGC.

Small wonder then, that the bourses, one of the major yardsticks of the "feel-good" factor, have been witnessing a bloodbath of sorts in recent days. As it is, both large and retail investors are currently withdrawing from the secondary market to have adequate funds in hand so as to be able to participate in the IPOs. And the bunching has aggravated the sentiment all the more. So much so, that there is tremendous redemption pressure on the mutual funds.

The Minister for Disinvestment, Mr Arun Shourie, admits that the bunching has been a major problem. "There's very little that we can do as the disinvestment proceeds are required by North Block by the end of the current fiscal to arrive at that magic figure of the fisc," he says.

"What we have done, therefore, is that apart from the residual stakes in IPCL and CMC coming up first, we have started with small issues, like that of Dredging Corporation, and later the bigger ones like GAIL and ONGC," Mr Shourie told Business Line in an informal chat.

Clearly, the investor will have to make his choice and go in for it.

There is another problem, however. And for that, Mr Shourie has no solution, except leaving it to the market forces. It is the floor price for each scrip, which the Minister says, "Care is being taken to announce just a day in advance."

Again, take IPCL, for instance, which opened for subscription on the book-building route on Friday last with a floor price of Rs 170. On the National Stock Exchange (NSE) the same day, the scrip closed at Rs 195.70. According to brokers, there are good chances of the scrip moving southwards when the bourses commence trading on Monday. And if that happens, retail investors would rather pick up shares from the market instead of subscribing to the IPO.

In fact, that could be one good reason why Reliance, the majority shareholder in IPCL, declined to pick up the additional 5 per cent stake that was offered to it at Rs 195 per share.

The same could be true of CMC issue, which opens on Monday with a floor price of Rs 475 against the February 20 closing price of Rs 541.50 on NSE. Similarly, the IBP issue, opening on February 26, has been set a floor price of Rs 620, nearly Rs 100 lower than the Friday closing price of Rs 717.55 per share.

The floor price has been consciously kept markedly lower to make the issues attractive. But will the market let them remain so?