10 Sep 2016 15:01 IST

Of IPOs, YES Bank and SEBI's order

Catch up on the interesting goings-on in Indian markets this week

The Sensex and Nifty spent much of the week dallying with new life highs. But after sweeping boldly past 29,000 and 8,900 on Thursday, they developed cold feet at the nth hour.

But never mind. The primary market is promising to become a beehive of activity. High-profile issuers such as ICICI Prudential Life, the BSE and L&T Technology Services have lined up IPO plans. With ICICI Pru Life settling on an opening date of September 19 for its offer, L&T Technology Services seems to be the most proximate of the lot and will open on September 12.

What’s in a name?

If that’s what you’re thinking after subscribing to the L&T Infotech IPO in July, the small difference in name apparently brings with it a big difference in market fancy. At the offer price of ₹710, L&T Infotech priced its shares at a modest PE ratio (trailing) of 12.6 times. But L&T Technology Services is demanding a much higher PE of 20-21 times for its upcoming offer.

The analyst community, which was lukewarm to the Infotech offer because the firm was into the same-old BFSI, energy and industrial triad, seems to be more gung-ho about Technology Services because it is into ‘pure-play’ engineering services, seen as L&T’s core competence.

But the million-rupee question is why L&T couldn’t combine the two tech firms or list its more promising tech arm first. As things stand, it was probably being too smart by half in testing the waters with the less fancied IPO. With the L&T Infotech share languishing at ₹645 (well below its offer price of ₹710), investors may be wary of overpaying for its twin.

The profit warning from TCS this week , which resurrected fears that India’s top tier software players are losing their plot, may not make the going easy for tech IPOs either.

Enough to go around

But is there enough investor appetite for all these bunched-up, high profile IPOs? L&T Tech is looking to mop up about ₹900 crore, ICICI Pru Life is targeting ₹5,000 crore and BSE is hoping for about ₹1,200 crore. There certainly is.

Don’t forget the mad rush we recently saw for RBL Bank shares which attracted bids upwards of ₹60,000 crore for an offer size of ₹1,200 crore. Even after accounting for borrowed money, a fair chunk of those refunds are probably sitting in bank accounts, waiting for the next opportunity.

Yes or no?

One reason for the runaway response to the RBL Bank offer, it was said, was that investors were hoping it would be the next Yes Bank. What’s so special about Yes Bank? Well, the stock (offered at ₹45 in its IPO in 2005) has turned out to be a thirty-bagger for its original investors.

But in a strange twist of fate, Yes Bank itself ran into trouble raising new money from investors this week as its $1 billion Qualified Institutions Placement (QIP) had to be put on the back burner. The management claimed ‘fantastic’ response and blamed regulations which forced it to keep the QIP window open for three days, causing investors to have second thoughts.

But one wonders if the second thoughts were also the result of the stock tanking sharply and inexplicably as soon as the offer opened. The Yes Bank stock has been a big gainer from the beeline for private bank stocks, putting on a cool 111 per cent in the last seven months. A strong surge ahead of the offer to ₹1,448 on September 6 saw the bank pegging the minimum price for the QIP at ₹1,350. But by Day Two, the stock had tanked below ₹1,330. It has since headed further south to ₹1,275 levels.

That’s a reminder of how fickle so-called investor ‘demand’ can be. Red hot when a stock’s rising. Stone cold the moment it cracks.

Late freeze

SEBI continued to train its guns on the promoters of companies that have flouted listing norms and are thus headed for compulsory delisting. This week, in a new Circular , it asked depositories to freeze these errant promoters’ shares and barred them from the market for ten years, for good measure.

A couple of months ago, after identifying nearly 1,200 companies suspended from the bourses for not complying with listing rules, SEBI had decreed that these companies had to buy back shares from public shareholders at a fair price, decided by independent valuation. This move is a follow-up to that.

But the question is whether the promoters of these firms will really mind this freeze. Many of these are likely to be penny stocks or probably represent vanishing companies whose promoters have no intention of making a re-appearance in the market. Get a bit of background here .

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