Investors avoid Equitas IPO

Equitas Holdings IPO which opened yesterday got off to a slow start with investors bidding for less than 10% of the shares on sale. This means the Equitas IPO over subscription currently stands at 0.10 times. The shares which are priced attractively at Rs 109-110 per share could see a rise in demand by the 3rd day of the IPO which closes on 7 April 2016.

The company was able to raise Rs 652 Crore by allotting 5.93 Crore shares to Anchor Investors which included mutual funds and domestic institutional investors. This share sale is considered to be the biggest IPO to hit the Indian Stock markets since 2012, some analysts believe the subdued response could be because of the losses that retail investors faced in recent IPO’s. There are still two days left for the issue to close and last minute bids could come in on the third day. The company’s stock is expected to list in the third week of April after share allotment is conducted in the second week.

allotmentAre Indian Investors wary of IPO’s ?

The markets dropped by 2% yesterday on heavy selling after the RBI’s decision to cut rates did not find favor with investors who expected a bigger rate cut. The downtrend was seen globally with most international stock exchanges losing between 1-2%. Recently, many retail and HNI investors burnt their fingers on the much hyped Quick Heal and Cafe Coffee Day IPO’s,  both of which are now trading below the issue price. This could have deterred them for applying for shares of Equitas Microfinance, where a bulk of the money being raised is going to investors looking to exit the company. Moreover the company is expected to require fresh capital in the ensuing months as it converts into a bank.

nifty graph

The Nifty 50 closed down by 2 % on the day that the IPO opened.

Equitas Holdings plans to use a small part of the new funds raised to convert itself into a small finance bank. It received a license to convert into a SFB from RBI last year and has 18 months to comply with the statutory requirements. Many analysts have recommended that investors subscribe to the IPO as it’s valuations are much lower than it’s listed peers such as SKS Microfinance and SE Investments. It is to be seen if investors will come out in droves on the second and final day of the IPO.

Future of Small Finance Banks.

Equitas will become the third listed microfinance company in India and is expected to be followed by Ujjivan Financial Services and Bandhan Bank. Suryoday, Utkarsh and Disha Microfinance are other MFI’s that could tap the capital markets this year. Most microfinance companies that are getting listed are doing so to comply with the norms for converting into a Small Finance Bank.

The move to get listed is a positive development for the sector as it brings in transparency and makes these companies accountable to the public. A public listing also raises the profile of the orgnaization. Though there will be competition among the 10 small finance banks that would begin operations this year, India is a growing economy and the financial sector is still in it’s infancy when compared to it’s global peers. The microfinance stocks that are listing today will give a high return in the long run.

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