I-bankers' track record disclosure: Investors to gain little

Mehul Shah, Ashish Rukhaiyar & Ronak Shah
Mumbai, 14 October 2011

Which is a better merchant banking entity? Enam or JM Financial? Or, those owned by institutions, such as ICICI Securities, IDFC Capital or SBI Capital Markets?

Come November 1, investors will get a chance to judge the track record of investment bankers, based on how the issues managed by them fared. However, the short duration mandated by the Securities and Exchange Board of India (Sebi) means long-term investors will not get much insight, experts say.

Based on the parameters laid out by Sebi in its circular last month, Business Standard analysed the performance of India’s top 10 investment bankers in terms of the number of initial public offers (IPOs) managed by them over the last three financial years.

According to Sebi, from November 1, while filing documents for new issues, merchant bankers will have to disclose data for all the issues managed over the last three financial years. The disclosures would include the issue price, performance on the day of listing and the price movement on the 10th, 20th and the 30th day. The same has to be compared with the movement of the benchmark index.

A closer look at the data compiled by the BS Research Bureau shows that most issues managed to close above their respective issue prices on the listing day. Over the previous three financial years, a total of 132 issues were managed by the top 10 bankers, of which 77 offerings stayed above the issue price on the day of listing. However, the picture changed over a one-month period, when the number of issues trading at a discount rose to 71 and those trading at a premium declined to 61. (See table)

For instance, of the 12 offerings managed by ICICI Securities, eight stayed above the issue price on the first day. Over a month, however, only two traded above the issue price.

Officials at investors’ associations favour the move to include the track record of investment bankers in the prospectus, but believe the time period to judge the issue should be longer.

“This will be an additional tool for investors. If a merchant banker has consistently done bad, investors will be cautious while selecting an issue,” said A K Narayan, president of the Tamil Nadu Investors’ Association. “The listing day or 30 days after listing is too short a period to judge the issue. They should definitely include one-year performance, too,” he added.

“The listing day performance is not a good indication. Performance should be judged after at least a 3-6 month period,” said G S Sood, president of the New Delhi-based Society for Consumers’ and Investors’ Protection. “The entire exercise should be conducted with a view to take corrective action against the erring investment bankers and curb the nexus between promoters and investment bankers indulging in manipulative practices,” he added.

Merchant bankers, meanwhile, are not fully convinced that disclosures in the proposed form would help investors take a better-informed decision, as envisaged by the regulator.

“If I am managing a Rs 1,000-crore IPO, the investor needs to know if I am capable enough of handling such a large offering,” says the director of a domestic merchant banking entity featuring in the top ten list.

"Industry players have conducted surveys which say nearly 90 per cent of the applicants invest only for listing gains and sell the shares on the day of listing. So, why will the investor be interested in knowing what happens to my issue on 20th or 30th day,” he asked.

“Once the company is listed, we don’t have any control over its performance. If the issue is subscribed multiple times, it shows enough appetite among investors at the issue price,” said a Mumbai-based investment banker, requesting anonymity.