"We may now see more realistic pricing and that is good news for the investors, Prithvi Haldea of Prime Database said. On a fundamental level, it should be understood that an issuer can no longer price his IPO at his own will, because unlike the 1990s, the new SEBI guidelines require that at least half the IPO should be subscribed to by the qualified institutional buyers, he said. This means that the issue has to pass the test of pricing at the hands of the QIBs.
"Now QIBs may also go wrong, but only marginally. In no way will we see a repeat of cases where an issue was priced say at Rs 400 and then slid to Rs 20 post issue," he said. There have been instances of some issuers, but only a handful, becoming aggressive with their IPO pricing.
Given the current market scenario, the issues that have been caught in the mayhem would definitely be hurt and may not get overwhelming oversubscriptions. However, as per Haldea's assessment, all of these would definitely sail through.
That would be good news for all - the company gets the money that it actually wanted and the investors get higher allotments, he said.
"When the Sensex was ruling at 8000, the market believed it was good news for floating new IPOs. So why the panic when the market is still at 10000", he said.
In fact, Deccan Aviation, which runs low-cost carrier Air Deccan, has extended its IPO by three days and pared the lower limit of the price band by Rs 4. The book-built issue with an original price band of Rs 150-175 was slated to close on May 23. The new price band is Rs 146-175. This is the first instance of a price cut in a book-built public issue and extension of closing day.
Deccan Aviation managing director G R Gopinath said the intention of the twin moves was to provide opportunity to the investors, who were caught in the market mayhem in the past one week and could not participate in the issue.
The other issues hitting the market these days or closed recently include Gangotri Textiles, Rathi Udyog Ltd and Unity Infraprojects.
Haldea also contested views of some experts that response to the IPOs has fallen dramatically, saying the trend in subscription on the first couple of days of IPO opening could not be extended to closing days.
With market regulator SEBI imposing margins on QIBs, it did not make any sense for them any more to put in bids in the early days of an IPO, he said. The practice of huge bids was rampant when no margins were required, leading to huge oversubscriptions in the very first few minutes of issue opening.
According to Haldea, most bids from QIBs now come only on the last day, or at best on the day preceding the closing date. By the same logic, and given the validation that the
QIBs provide, most of the applications from high net worth investors, who are highly leveraged, as also from the retail come on the very last day, Haldea said.