Two out of three IPOs since January 2007 have listed at a premium, so investing in them was a good bet for those seeking to make a quick buck. As a natural corollary, the grey market —- or the unofficial 'bourse' where investors trade informally through verbal, but fully honoured, transactions —- has been booming: 70 of 107 public issues of the past 14 months have given punters a neat profit on listing day.
So when shares of Reliance Power, the mother of all Indian IPOs, was set to open, the grey market, especially in Gujarat, went into a frenzy, with quotes soaring to Rs 900 or twice the issue price.
It is this milieu that lured Sudarshan Nair, an executive with a logistics firm in Mumbai —- and lakhs of others —- to borrow money and invest in the IPO.
Like everyone else, Nair also wanted to make the quick buck.
"Thank God I got allotted only 17 shares," he said, quivering in hindsight.
But Nair's keeping the faith and not selling now.
Naresh Kothari, co-head of institutional equities at Edelweiss Capital says that's par for the course.
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"Retail does not normally sell at a loss. They would have held on primarily because it has gone below that acquisition cost. And some would have also taken a fundamental view, knowing that the Ambani brothers are creators of wealth," he said.
"My take is that it's the conventional IPO flippers, such as hedge funds, and to a certain extent, high networth individuals, who sold on Monday," he said.
He added that domestic banks may not have sold either as they typically do not sell at a loss.
But, apart from HNIs, thousands of others such as qualified institutional buyers, foreign institutional investors and hordes from the Gujarat were doing.
The hit may not be very hard for these investors because the weighted average price per trade was Rs 417 on the NSE and Rs 413 on the BSE.
"Deliveries were at 32 per cent of the total volume of 19.83 crore on the exchanges," points out Amitabh Chakraborty, president-equity, at Religare Securities.
"I can't say whether this is good or bad, but the point is, the shares have shifted to stronger hands —- who else can take delivery in such a market?" he asks.
After opening at Rs 547.8, and making a high of Rs 599 immediately through some clearly false trade, it was all southwards for the Reliance Power share on Monday. Total volumes indicated 87 per cent of the floating stock of 22.8 crore shares changed hands.
The percentage is not large as some listings have racked up turnover upwards of 100 per cent of floating stock, but what pressed prices —- and the broad market —- down is the sheer number in Reliance Power's case. By the end of it, the share recorded a traded volume of Rs 8,243 crore.
Vinod Kumar Sharma, head of research at Anagram Securities, says not a single tear needs to be shed for those who got in with a one-day horizon.
"With open eyes, they got into a company that said that it will have its full 28,800 mw generating projects ready only by 2016," says Sharma.
That the Sensex, following cues from the rest of Asia, fell over 1,000 points intra-day, and closed at 16,630.91, 834 points below the previous close, did not help the Reliance Power IPO in any way.
But unlike Nair, who had bought the share with his own money, and thus was not compelled to sell, there were others, especially HNIs who were forced to unload at a loss because they had borrowed at exorbitant rates to fund subscription applications. At 16-19 per cent interest rates, such investors would have broken even only if the shares debuted at Rs 550-590.
But, many of them may not have had to sell, because of the marginal allotments they got. "As such, they could have financed the purchase out of their own pockets and returned the borrowed money," says Sharma.
For those like Nair, who are waiting for a better day to sell, it may be a while before that day arrives.
"Reliance Power should trade near Rs 300 for sometime," bets Anmol Sekhri, fund manager at Bonanza Portfolio.
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