MCX IPO overbid 54 times to Rs 35,000 crore (ET)

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After rushing to bet on the initial public offering of Multi-Commodity Exchange (MCX), investors, long starved of maiden issues, will next try their luck in the upcoming share sale of ONGC. The listing gains from MCX and the money investors make from ONGC's follow-on offer may pave the way for a revival in the primary market. The Coal India issue in October 2010 was the last significant IPO where investors made gains. The MCX IPO, which closed on Friday, was oversubscribed 54 times, with the retail portion oversubscribed by a record 24 times till 6 pm. Bankers to the issue had to seek extra time from exchanges for uploading investor applications. The bids from institutions and high net worth investors and corporates were oversubscribed 49.12 times and 150.35 times, respectively. MCX is the first Indian bourse to be listed. Investment bankers believe the success of its IPO will rub off on the proposed ONGC issue expected in early March. But the huge subscription can partly work against many investors, who may end up with only a fraction of the shares they have applied for. The gains may be thinner for HNI investors, who have borrowed money to make a quick exit minutes after listing - a practice better known as 'first day first show' on Dalal Street. These investors are waiting to find out how the new rule on listing day price cap, which will be tried out for the first time with the MCX issue, works out.
According to the rule, on the listing day the stock price can touch a maximum of 20% above the 'equilibrium price', which will be determined through a call-auction process.

While the ONGC issue will largely be an institutional offering with no retail quota, all announcements from the government will be closely tracked by investors. Many of them may fish for an arbitrage opportunity, where they can take a futures position or sell their current holdings and participate in the equity auction.

"The sentiment in the primary market is a reflection of improved sentiment in the equity market and return of risk capital after a long dry spell. We have not seen a large quality issue for a long time," said V Jayasankar, senior executive director & head of equity capital markets at Kotak Investment Banking. The outcome of the proposed ONGC equity offer will decide the future course of divestments in BHEL, SAIL and other PSUs.

Since 1989, this is the first time there has been a five-month gap between two IPOs in the Indian capital market. There were public offers from small-sized companies in October last year, but few genuine investors made money and promoters of some of these entities were later pulled up by the capital market regulator for fund diversion.

Investors will keenly await the outcome of next week's meeting of the empowered group of ministers (EGoM) that will finalise the timing and reserve price of the ONGC stake.

IPO market may revive in FY13

A 5% divestment in ONGC will fetch the government, which currently holds 74.14% stake, Rs 12,000 crore at current market valuations. "We may see QIPs (qualified institutional placements) in the early stage of a liquidity-driven rally. The primary market will gather steam when more IPOs in their traditional form hit the market," said Anup Bagchi, managing director & CEO, ICICI Securities.

According to Ashok Kumar, promoter of theIPOguru.com, a primary market portal, "There are initial signs that the long-dormant IPO market could revive in FY13...There will be momentum if the listing gains are sustained." Retail investors, awaiting the ONGC issue, are beginning to question whether they will have to compete with institutional investors.

"One of the objectives of disinvestment is to get more retail investors...there should have been some announcement that retail investors will get preferred allotment," said Prithvi Haldea, chairman & managing director of Prime Database.

Most retail investors would be clueless on how and at what price to participate in the ONGC issue as the sale would happen through a special stock exchange window where one shareholder will auction a part of the holding. However, experts such as Haldea admit this is a better way to raise funds quickly. But does it make sense for retail investors to bid through their brokers?

"In such an auction process, everybody is on an equal footing. If the demand is strong on a price priority basis, retail and HNI investors will have a lesser role to play," said Jayasankar. Market participants expect the government to announce a floor price above which investors will have to put in bids.

The government, they feel, should fix a floor that is higher than the current market price to show its conviction in the success of the issue. This, said Haldea, could result in better valuation. Setting the floor price lower than the current market price may reflect the government's desperation to raise funds, he added.