Asian share markets are mixed today as Chinese and Hong Kong shares fall. The Nikkei 225 is down 0.2% while the Hang Seng is down 0.7%. The Shanghai Composite is trading down by 0.7%.
Back home, India share markets opened the day on a positive note, hitting new highs. The BSE Sensex is higher by 110 points while the NSE Nifty is trading up by 28 points. The BSE Mid Cap index and BSE Small Cap index both opened the day up by 0.5% & 0.3% respectively.
Sectoral indices have opened the day on a mixed note with FMCG stocks and stocks in the capital goods sectorwitnessing maximum buying interest. The rupee is trading at 68.63 to the US$.
Moving on to the news from IPO space. HDFC Asset Management Company, the joint venture between Housing Development Finance Corporation and Standard Life Investments, opened its initial public offering for subscription yesterday.
The IPO seems to be in high demand as it was fully subscribed within on the first day of the bidding process.
This is the sixth public offer of the current financial year 2018-19, after TCNS Clothing, Varroc Engineering, RITES, Fine Organics Industries and Indostar Capital Finance.
The price band of the issue is set at Rs 1,095 to Rs 1,100 apiece.
HDFC Asset Management Company (HDFC AMC) is the asset management arm of Housing Development Finance Corporation (HDFC Ltd). Promoted by HDFC in 1999, Standard Life Investments (SLI) acquired 26% stake in HDFC AMC in 2001, and now the company operates as a joint venture between HDFC and SLI.
The company has been the largest AMC in India in terms of equity-oriented AUM since the last quarter of FY11.As of March 31, 2018, its proportion of equity-oriented AUM to total AUM was at 51.3%, which was higher than the industry average of 43.2%. Equity-oriented schemes generally have a higher fee structure than non-equity-oriented schemes, and this is where HDFC AMC wields its competitive advantage.
To know our view on this IPO, you can read our IPO note on HDFC Asset Management Company Ltd (requires subscription).
Speaking of IPOs, what if one had invested in all the IPOs? How have the IPOs performed in 2017? And, have they outperformed the indices?
IPOs Underperform Broad Market Indices
According to an article in Business Standard, an investor who bet on the 33 IPOs of 2017 (on a weighted average basis) has seen the value of investment rise by 17%. However, compared to broad market indices, the underperformance is a bitter disappointment.
The above chart clearly shows the underperformance of IPOs.
What is the reason for this underperformance?
One of the key reasons IPOs have touched the altitude is due to a surge in the Indian equity market backed by liquidity and increasing investor demand for financial assets. Private equity investors and promoters took advantage of the absurd demand and came out with sky-rocket valuations. This is what we call a valuation bubble in the IPO market.
In our previous edition, we categorically stated:
- "With greed hypnotising most folks, it is time for retail investors to exercise caution. While this does not mean that you should avoid IPOs lock, stock, and barrel; just ensure you do not end up paying higher valuations for a company that is yet to establish its worth".
During such times, it is imperative to be critically selective when investing in IPOs. Carefully analyse each company for its own merits and don't give in to the hype surrounding the public offering.
To know how to safely profit from the IPO rush, download this FREE report now and discover How to Get Rich with IPOs.
Moving on to news from the banking sector. In another successful resolution of the ongoing insolvency resolution plan of the Reserve Bank of India, Liberty House has received approval from the National Company Law tribunal (NCLT) for acquiring debt-laden Amtek Auto.
Amtek Auto was among the first list of 12 large bad loan accounts that the RBI identified for insolvency resolution. Notably, the company owes over Rs 126 billion to its lenders.
The lenders have however, taken a 65% haircut to allow Liberty House's offer for repayment of Rs 44 billion.
As part of its resolution plan, Liberty House has offered to pay Rs 32.2 billion upfront to the financial creditors and proposed to infuse Rs 5 billion for stabilizing and improving operations. Besides Liberty House also plans to invest another Rs 10 billion over the next 2-3 years.
Amtek Auto is the fifth large insolvent company to be resolved under the Insolvency and Bankruptcy Code (IBC) after Bhushan Steel, Electrosteel Steels, Monnet Ispat and Adhunik Metaliks. Amtek Auto was admitted for insolvency proceedings in July last year on a petition filed by Corporation Bank.
This article was originally published in English at www.equitymaster.com
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