Bharti Infratel's Rs 4500-crore initial public offering managed to get fully subscribed, thanks to support from institutional investors.
Bharti Infratel's Rs 4500-crore initial public offering managed to get fully subscribed, thanks to support from institutional investors. High networth and retail investors cold-shouldered the issue, with brokers citing expensive valuations as the main reason. Anecdotal evidence seems to suggest that retail investors usually get finicky about valuations only when the sentiment in the secondary market is weak. And that is certainly not the case now.
The Sensex has rallied around 2000 points in the last three months and a good number of second line shares too have participated in this rally. Given this backdrop, retail investors' response to the IPOs of PC Jeweller and Credit Analysis and Research (CARE) was not overly enthusiastic either though the retail portions did get fully subscribed.
But are retail investors a better judge of valuations or are they swayed by market sentiment? The Reliance Power IPO at the peak of the 2008 bull market got an overwhelming response despite ridiculous valuations. In February this year, commodity stock exchange MCX's IPO too got a massive response from retail investors though valuations definitely were not cheap. So, it is fair to assume that an attractively priced issue from a pedigreed firm will definitely get oversubscribed irrespective of secondary market conditions, while an overpriced issue may or not flop depending on the mood in the broader market.
The answer to the Bharti Infratel issue being ignored by retail and high networth individuals could lie elsewhere. Many erstwhile shareholders of Bharti Telecom are still sore about the manner in which the Mittals got the firm de-listed in the late 90s. Minority shareholders alleged that they were bought out cheap. (Some shareholders of Bharti Telecom are said to be still holding on to their shares, in hope of getting a fair price for them.)
And to add insult to injury, the Mittals came out with an initial public offering for Bharti Tele-ventures (now Bharti Airtel) in early 2002, just a couple of years after Bharti Telecom's delisting. Bharti Tele-venture's retail portion too had got a dismal response. It could partly have been due to depressed market sentiment globally because of the 9/11 terrorist attacks just a few months back. But shareholder resentment too would have paid an equally key role.
Today, institutional investors hold the key to the success or failure of a public offering. But having a good base of retail investors too helps, considering that this class of investors is not as finicky as fund managers.