CNBC-TV18’s Varinder Bansal gives lists the issues that have seen such patterns and how they are exactly done.

First Winner came out with an issue size of Rs 70 crore. There were only four QIBs and there was no application from any mutual fund, the issue was subscribed nearly 1.14 times. Importantly, a certain Sophia Growth Fund was allocating nearly 16.7 lakh shares, which is around 9.5% equity sold around 15.5 lakh shares, which is around 93% of what they were allotted within one week of listing.

Another case is Tulsi Extrusions, which has an issue size of Rs 50 crore; it had no application from mutual funds, only 6 QIBs applied for this company. Again Sophia Growth Fund was allotted nearly 6 lakh shares, around 5% equity and they sold the entire 5% equity within two days of listing. Fun and games as you have already mentioned is happening in the stock price. The issue price was around Rs 85 for Tulsi Extrusions, it went to as high as Rs 145 and I believe the stock is trading at around Rs 40. So a cut was seen into the stock.

Sita Shree Foods is another IPO which is a very smallcap IPO, with an issue size of nearly Rs 30 crore. The issue was subscribed nearly 2.5 times and there were only 6 QIBs which applied for this but very importantly similar Sophia Growth Fund has allotted nearly 17.8 lakh shares which is around 8% equity of the company and they sold the entire equity within a month of listing. Similar fun and games in the stock price happening in this stock as well; issue price is around Rs 60, went to as high as Rs 66 and the current market price is around Rs 20.

What is this Sophia Fund?

The full name of this is Sophia Growth-A Share Class of Somerset India Fund and this is a sub-account of an FII, which is based in Hong Kong named as Geomatrix. They have around 12 sub-accounts in India and this Sophia Growth Fund or Somerset as it is popularly known as is one of their sub-accounts.

They have a few holdings in the secondary market, which are smallcap companies, for example Master Trust, Kohinoor Broadcasting, Kaashyap Tech and Teledata Info.

Very interestingly, in the case of one recent IPO, Austral Coke, a similar fund - Sophia Growth Fund - has allocated around 10% equity in pre-IPO placement of around 27.5 lakh shares. The same fund was also selling in their sister company, Gremach Infra who has been buying or they have pre-allotted equity in Austral Coke, which is a sister concern company. It is very interesting and baffling that the promoters of the company have hinted at having low valuations in the already listed entity of Gremach Infra and much higher valuations in the IPO coming in."

Nimesh Shah, CNBC-TV18 reports that in many cases BRLM (Book Running Lead Managers), management and the brokers are aware of the investor’s identity. However, the modus operandi has changed in past few issues; now the operating investors are given exit options in two to five days. The QIBs (Qualified Institutional Bidders), HNIs (high networth individuals) are funded at interest rate of between 30-48%.

SP Tulsian of sptulsian.com on his view of the this issue can be resolved.

If the SEBI initiates an inquiry, they have to crack on with the list of allottees; this has to be covered for the retail category also. It is very easy for any investigator or any regulator to crack on the QIB and the HNI category because they are only a handful – for example, in the case of Birla Cotsyn India, about Rs 50 crore face value of the shares are held by just 54 allottees in QIB and HNI put together. I do not think that they are incapable to take a call on a stock when analysts can take a call on the stock.

There are at least 15 or 20 issues in which the same modus operandi has been followed. So first that needs to be cracked but it is very much essential if one want to nab the cartel or the so called operator or the management or for cornering of the retail accounts that one needs to investigate - the retail category account.

The Sebi or the Ministry of Finance can go ahead with the refund of money to the lakhs of investors; its very much essential that you nab these 4,000-5,000 accounts because ultimately they will probably be common investors; dummy demat accounts. Though the ownership is genuine, they don’t make use of those demat account for benefit of themselves. Probably those 5,000 demat accounts must be getting allotted shares in all the issue. So it will be easy. And once having done that, it is easy to reach to the conclusion though it maybe a little lengthy or maybe time consuming exercise to carry out investigation in respect to the retail category account. But I do not think that this is difficult.    

On Investment Bankers, SP Tulsian said:

One cannot name because unless and until one the substantial proof to support that. The reputed merchant banker, the established companies, and the reputed houses - they all are interested in this kind of mechanism. I do not want to name the issues where the mandate was given by an established merchant banker to garner the applications for an issue which was called off subsequently. So in that case it’s a nexus of all the people now it is a matter of necessity or a pre arranged move by those things, I cannot say.

But if one is not able to get the subscription for the larger issues that have happened in the past, then they are forced to go into this. They offer the discount of about 25% to 40% given for a short interim period to these operators. So they are forced to do that. So I think all of them are involved in that. Instead of calling off the issue they prefer to opt the second route by offering a discount of 30-40% so as to sell through. Ultimately the merchant bankers also have the liability because as one of the merchant bankers has been saying, they have to put even that in check. So to avoid their liability, they come forward; they act as a syndicate member.