MUMBAI: Discretion is the better part of valour, said the Bard. And so it seems to be with mutual funds, which have adopted this mantra in the wake of an uncertain market and steep valuations while investing in public issues. Significantly, most funds have not been investing - or are barely investing for listing gains - in public issues over the past eight months.
Quality issues too reflect this approach. For instance, 11 funds had invested only Rs 189 crore in the DLF public issue, which opened for subscription in June 2007. Likewise, corroborating the date of public issue, listing or portfolio declaration, there is evidence that over 170 funds invested only Rs 114 crore in the public issue of Power Grid Corporation. Power Grid was listed on October 5.
The mutual fund portfolio (of September 2007) declared in October, only reflects shares in the allotment phase. There is no data on how many funds sold their holdings during debut. The same is the case with the public issue of Omaxe (with net mutual fund investment of only Rs 11 crore), Central Bank of India (Rs 37 crore), Mundra Port (Rs 391 crore) and Motilal Oswal Financial Services (Rs 72 crore).
“Generally speaking when valuations are high, mutual funds investing into public issues look for plain listing gains. Several issues launched in the second half of 2007 were overpriced. It doesn’t make sense to hold over-valued stocks over a longer term; the strategy, therefore, is to dump on listing and buy back once prices have deflated,” said a leading fund manager on conditions of anonymity.
One should not forget the fact that until a year ago, fund houses were eager on shoring up shares of every IPO that hit the market. A lot many number of domestic banks were also investing heavily in public issues then. However, this stopped when the market corrected steeply in March 2007.
According to experts, a combination of two factors could have had a bearing on mutual fund investments in IPOs.
Crisil’s fund services & fixed income research head Krishnan Sitaraman said, “Firstly, in IPOs where oversubscription levels are higher, mutual funds will not get a larger number of shares because they would typically not be borrowing while applying for shares. On the other hand, retail investors and HNIs are applying for IPOs in large numbers, thanks to rising IPO financing.”
“Secondly, in 2007, thanks to a very buoyant bull market and strong performance of existing listed stocks, there was no real need for funds to invest in IPOs. A major portion of their tried-and-tested stocks were doing well on the bourses, with some even posting returns in excess of 100% for the year,” Mr Sitaraman added.
Quality issues too reflect this approach. For instance, 11 funds had invested only Rs 189 crore in the DLF public issue, which opened for subscription in June 2007. Likewise, corroborating the date of public issue, listing or portfolio declaration, there is evidence that over 170 funds invested only Rs 114 crore in the public issue of Power Grid Corporation. Power Grid was listed on October 5.
The mutual fund portfolio (of September 2007) declared in October, only reflects shares in the allotment phase. There is no data on how many funds sold their holdings during debut. The same is the case with the public issue of Omaxe (with net mutual fund investment of only Rs 11 crore), Central Bank of India (Rs 37 crore), Mundra Port (Rs 391 crore) and Motilal Oswal Financial Services (Rs 72 crore).
“Generally speaking when valuations are high, mutual funds investing into public issues look for plain listing gains. Several issues launched in the second half of 2007 were overpriced. It doesn’t make sense to hold over-valued stocks over a longer term; the strategy, therefore, is to dump on listing and buy back once prices have deflated,” said a leading fund manager on conditions of anonymity.
One should not forget the fact that until a year ago, fund houses were eager on shoring up shares of every IPO that hit the market. A lot many number of domestic banks were also investing heavily in public issues then. However, this stopped when the market corrected steeply in March 2007.
According to experts, a combination of two factors could have had a bearing on mutual fund investments in IPOs.
Crisil’s fund services & fixed income research head Krishnan Sitaraman said, “Firstly, in IPOs where oversubscription levels are higher, mutual funds will not get a larger number of shares because they would typically not be borrowing while applying for shares. On the other hand, retail investors and HNIs are applying for IPOs in large numbers, thanks to rising IPO financing.”
“Secondly, in 2007, thanks to a very buoyant bull market and strong performance of existing listed stocks, there was no real need for funds to invest in IPOs. A major portion of their tried-and-tested stocks were doing well on the bourses, with some even posting returns in excess of 100% for the year,” Mr Sitaraman added.
