Investors prefer to sit on cash than invest in IPOs

MUMBAI: The persistent fall in the secondary market has affected the primary market badly. So much so that Emaar MGF Land and Wockhardt Hospitals have had to reduce the price band of their initial public offerings ahead of their opening. A day before the issue was to open Thursday, Wockhardt Hospitals lowered the price band to Rs 225-260 from the earlier Rs 280-310. Emaar MGF also cut the price band by 10 per cent to Rs 540-Rs 630 from the initial Rs 610-Rs 690, a day before the IPO opened Friday. “The price band has been refixed considering the prevailing market sentiments and the developments in the financial markets in India and globally,” Emaar MGF said in a statement. An analyst with a local brokerage said, “investors have turned cautious after the upheaval in the market and would prefer sitting on cash rather than taking a risk investing. This has resulted in fall in IPO grey market premium. Given the market condition, the grey market premium of Reliance Power has come down from Rs 450 to Rs 130. Emaar MGF is trading at a grey market premium of Rs 50-60. Right now, Wockhardt is not enjoying any premium in the grey market.” By reducing price-bands, the companies are trying to attract investors, who would otherwise avoid these IPOs due to "stretched valuations." “The way premium is dwindling in the grey market, it may fall further by the time of listing and investors may end up making losses. This is a cause of concern, which is why the price-bands are being lowered," the analyst said.