INVESTOR apathy towards new listings continues as seen from the decline in the shares of most of the companies that debuted on the bourses this month.
Four of the five initial public offerings (IPOs) listed in the past three weeks are quoting at a significant discount to their offer prices. These companies are Pradip Overseas, Shree Ganesh Jewellery House, Intrasoft Technologies and Goenka Diamond & Jewels.
However, Persistent Systems is quoting at a 26% premium to the offer price.
According to merchant bankers, investors remain wary of new share offerings after many high-profile offerings in the previous months fared poorly. In addition, over-pricing of public issues is also a key reason for the underperformance, they said.
“Market perception about some of the latest IPOs may not have been positive because of their unimpressive industry background. This could have prompted investors to take a cautious view on investing in these companies,” said Jinesh Mehta, executive director, Saffron Capital Advisors, a Mumbai-based merchant banking firm.
Out of the five, Shree Ganesh Jewellery and Goenka Diamond & Jewels are into jewellery, a sector which traditionally attracts low discounting in the market. Pradip Overseas is a textile firm, again a sector on which most investors are bearish because of the rising rupee.
There could be many other existing companies in these industries available at much cheaper valuations than the new players, said Mr Mehta.
Some bankers also blame aggressive pricing as one of the factors behind the disappointing performance.
“A few issues were priced aggressively which prompted retail participants to stay away at the time of offer and also after listing,” said Almondz Global Securities investment banking head Sharad Rathi, without commenting on specific IPOs.
He also said many high net worth investors (HNIs) could have exited their investments on the day of listing, thereby putting pressure on the stock prices.
A look at the allotment data of the five IPOs shows that they attracted large HNI subscription while retail participation was comparatively lower.
For instance, Goenka Diamond & Jewels saw non-institutional subscription (including HNIs) of 2.7 times compared to 0.5 time retail subscription. The stock listed on Friday at Rs 130 against the offer price of Rs 135 per share. It fell sharply on Monday but recovered some ground to close 3.2% at Rs 118.
Shree Ganesh Jewellery House is another stock which is currently trading much lower than its offer price. At Tuesday’s close of Rs 153.5, the stock was quoted at a sharp 41% discount, reflecting lack of interest among investors post listing.
The ShreeGaneshIPO received non-institutional subscription of 3.9 times while the retail portion was subscribed 1.2 times. The QIB subscription level stood 1.4 times. The company reported a net profit of Rs 50 crore on a turnover of Rs 871 crore in the quarter ended March 31, 2010 while the figures stood at Rs 168 crore and Rs 2,956 crore, respectively for FY10.

THE absolute market movement was narrow with an upward bias. The market hit a high of 5255 and low of 5207 before closing at 5232. Moreover, global cues showed positive sentiment with the US and Asian markets closing in green. Indian indices also moved up after the credit policy announcement as it turned out to be positive event. The market welcomed the 25-bps hike in CRR and repo/reverse repo rate against consensus expectation of 50 bps and 25 bps respectively. Banking, auto and real estate stocks rose sharply, reacting positively to RBI’s policy. But the IT sector, led by TCS, dragged indices down despite a better-than-expected results from TCS. Reliance faces resistance at 1110 levels which can be seen from the built-up of open interest in 1120 strike calls.
Implied volatility on Nifty ATM options cracked from 22% to 19%, showing that the market could be stuck in a narrow range of 100 points of 5160-5260 for the next few days. Also, current implied volatilities on Nifty index are one of the lowest seen in the past two years following global volatility indices (CBOE VIX is quoting at 17%).
The 5200 straddle is quoting @Rs 120 with 9 days to expiry, which implies a narrow range for the April Nifty expiry also. The turnover in F&O segment has fallen from one lakh crore yesterday to eighty nine thousand crore. However, a short strangle may work in this kind of range-bound market. Even a ratio spread of 1x5300 long calls vs 4x5400 short calls can be created. It will be advisable for traders to stay on the sidelines till a definite move starts in either direction.
WHAT TO WATCH OUT FOR
INDIA
RESULTS: TVS Motor, United Spirits and Zee News are among the companies that will announce quarterly results
AUDITED RESULTS:
Polaris Software Lab and Hindustan Zinc will declare audited results.
DIVIDEND: Nestle India will consider an interim dividend
WORLD
UK: Labour market data is expected to show another fall in joblessness. UK: Minutes of the April meeting of the Bank of England’s monetary policy committee will be released.

AS we step into the new financial year which marks the beginning of the earnings season, indications from the derivative statistics are giving bullish signals. To begin with, FII inflows and bullishness in crude are external parameters, which are supporting the positive move to
come in the market. From a derivatives perspective, 5200 seems to be new support for the market. There has been a substantial writing which took place in the ‘Put’ option of this strike. FIIs, too, sold some of it. Implied Volatility (IV) has shifted in the lower range which was prevailing in the bull run of 2007. Though not significant, but we have started witnessing unwinding in 5300 Calls and 5400 becoming more active. Nifty futures, too, have seen a formation of fresh long in the April series, as both foreigners and domestic participants are buyers in the cash market. But still, premium in Nifty futures has surged to 16.30 points for this series. All above factors suggest that the resistance level of 5300 has to go and the market may witness 5400-5450 levels in the next few trading sessions.
This journey of the next 150 points in the Nifty may be broadbased. We expect the mid-cap space to outperform large-caps. It’s a long expiry. So, we won’t see much of time decay on the options side this week. There are many mid-cap stocks, which are trading at their support levels and have liquidity in Call options. With IVs at lower levels and the time decay not an issue for a week, we suggest buying at-themoney Calls in stocks like IDBI, Suzlon, RNRL, and Unitech.

DOMESTIC money managers are gradually warming up to ‘wrap-like’ portfolio structures that are popular in developed markets. Wealth managers and brokers have begun offering portfolio management services (PMS) with mutual fund units as the underlying.
Known as ‘mutual fund wraps’ or ‘PMS fund of funds’, this product works on the same principles of highly-customised PMS schemes and is meant exclusively for affluent investors. In developed markets, mutual fund wraps are ‘do-it-yourself’ products and are ‘non-discretionary’ in nature. In non-discretionary portfolios, investors have the freedom to select funds of their choice. That is, they can structure their own portfolios, using third-party wrap platforms, with the help of an external investment expert.
In India, MF wrap providers offer discretionary portfolios where the wealth manager or broking firm will decide on investment strategies. The ‘wrap structure’ is managed like a ‘fund of fund’ that invests in diverse schemes and sectoral themes run by different fund houses. Edelweiss Capital, Bonanza Portfolio, Emkay Global, Motilal Oswal Financial, Ifast Financial (through online) and NJ India Invest are among the top providers of ‘MF wraps’.
“Our portfolio has mutual fund units of 5-10 asset management companies, covering various sectors, themes and investment strategies. Our investment coverage is restricted to 25 top equity funds (plus some debt exposure). Single stock exposure will not exceed 6% in our portfolios,” said Hiren Dhakan, associate fund manager, Bonanza Portfolio.
Under ‘wrap’ portfolios, the broking firm accepts a sizeable investment, generally between Rs 5 lakh and Rs 25 lakh, from the investor, to be deployed in an array of equity schemes. The broking firm also takes a power of attorney from the investor, empowering the firm’s investment manager to manage the portfolio. The broker charges anywhere between 1% and 2% of net investment as annualised management charges. Some broking firms also stake claim to a small portion of profits derived from investments. Most ‘MF wrap’ providers declare portfolio NAV at the end of the day.
Wrap fund managers expect to generate 25-30% returns over a threeyear period. Investment tenure in ‘wrap MFs’ could be 3-5 years. If an investor withdraws his funds before one year, he will have to pay an exit load.
“We’re offering non-discretionary wrap schemes to our clients through the Ifast interface. Using our portal, investors can buy multiple units of any fund house by giving just one application and cheque. A non-discretionary model helps the investor have a portfolio to his liking and risk profile,” said Rajesh Krishnamoorthy, managing director, Ifast Financial.
AT YOUR SERVICE
In the West, MF wraps are ‘do-it-yourself’ products Investors have the freedom to select funds of their choice Edelweiss, Bonanza, Emkay, Motilal Oswal Fin are among top providers of ‘MF wraps’ here

DOMESTIC fund houses may no longer find it attractive to launch fund of funds (FoFs), following the recent Sebi rule barring them from revenue-sharing arrangements with the schemes into which they invest. An FoF is a mutual fund scheme that invests only in other mutual funds.
While the Sebi move could sound the death knell for international feeder funds — a fund that routes money into a scheme investing in overseas markets — some industry officials feel even funds that invest in domestic schemes could be affected. According to distributors, top fund houses like ICICI, Birla Sunlife, Franklin Templeton, Fidelity, DSP Blackrock and DWS are reconsidering their plans to launch FoFs. According to the Sebi order, the Indian FoF will not be able to charge management fees on investments made by the target fund. The FoF fee structure adds up to around 3.25% annually. The fund house selling the scheme usually charges 75 basis points (0.75%) as commission from investors. It uses this money to meet marketing expenses, registrar fee and part of distributor commission. Separately, the target fund (where the money is invested) levies a fee of 1.5%-2.5% on investors in FoFs, a part of which is usually shared with the fund selling the scheme.
“By restricting revenue sharing, the
regulator intends to stop asset management charges at two points. From what we understand, it will also impact domestic FoFs, which invest into local funds,” said Ashvin Parekh, national leader-financial services, Ernst & Young.
According to Mr Parekh, most domestic FoFs follow a two-level fee pattern. Both source fund and the target fund levies about 75 bps (each) on investors as fund management charges. “The second para of the Sebi order clarifies that AMCs shall not enter into any revenue-sharing arrangement with the underlying funds and shall not receive any revenue from them. This widens the case for domestic funds as well,” said Mr Parekh.
According to experts, through this order, Sebi
intends to reduce charges on FoFs, and more specifically offshore FoFs, which have been charging investors heavily, but not yielding decent returns. Oneyear return on most FoFs has been in the range of 30-50%, much lower than category returns mapped by local funds. According to industry sources, it will no longer be profitable for fund houses to launch FoFs. An FoF occupies a special place in the product suite, as it allows a fund house to showcase investment products and asset classes that are popular in other markets. Domestic FoFs enable investors to invest across sectors and fund houses. Actually, most fund houses offering FoFs typically invest into their own sectoral funds, depriving investors an opportunity to have exposure to performing schemes run by other fund houses.
“The new changes will have implications for the viability of overseas feeder funds that fall under the FoF category, due to transfer pricing issues. But overseas funds being managed out of India will not be impacted. While this category accounts for a minor portion of industry assets today, we expect this to change over the coming years, given the benefits of international diversification,” said Jaya Prakash K, head-products, Franklin Templeton Investments.

NIFTY April futures opened the week on a negative note at 5200.30 levels and there was a selling pressure on Monday. Nifty April futures were low at 5180 levels.
However, good strength was seen from important support near 5200 levels and Nifty April futures made 52-week high at 5309.90 levels and closed the week at 5296.95 levels with 0.42% gains. Nifty March futures expired on Thursday and a long build-up was seen in Nifty April futures on Thursday and Friday, with an increase of 12.6% and 14.95% in open interest (OI), respectively. Also, April Nifty futures closed on premium for the past two trading days, indicating a long build-up in April Nifty futures.
As per international indices, Dow Jones, Nasdaq, S&P 500 and FTSE have been trading above their intermediate resistance levels, which may be positive for equity markets in Asia and Europe. Nifty PCR volume after making high at 1.13 on Tuesday, dropped down to 0.92 for Thursday and Friday trading sessions, which shows activity on the call side has been more aggressive, after Nifty March futures expiry.
Due to Nifty April futures expiry near month end on April 29 and positive global markets outlook, a long build-up was seen in 5300 and 5400 calls with 18% and 51% increase in OI & a short build-up was seen in the 5200 Put with a 12% increase in OI on Friday. India VIX also trading at 17.89 levels, indicating low fear level at current levels. Overall scenario represents bullish market with crucial support at 5200-5160 levels.
Increase in OI and positive price movement — a long build-up was seen in the IFCI stock from important support levels near 49 — and a long build-up was also seen in the APIL stock, which made 52-week high. A short build-up was seen in Unitech and DLF stocks. Healthcare, banking and FMCG have been the outperformers and the realty sector underperformed.
WHAT TO WATCH OUT FOR
INDIA
The finance ministry meet: The Finance ministry and central bank officials will meet on Monday to decide on the borrowing schedule. Traders will be watching the frequency, maturity and size of auctions.
Lancor Holdings: Lancor Holdings to consider, adopt and take on record the placement document for QIP issue.
Vakrangee Softwares: Vakrangee Softwares to issue 11 lakh equity shares having face value of Rs 10 each at a premium of Rs 60 per share to NJD Holdings.

ABOUT 50 companies increased their dividend rates this financial year, even as Corporate India, in general, was focussed on cutting costs, because of a lowerthan-expected topline growth.
With the business environment looking up as the year progressed, these companies announced one or more interim dividends, and pushed up the total dividend beyond what they had paid out last year.
Crompton Greaves, Engineers India, India Infoline, TVS Srichakra, Educomp Solutions, Garware Offshore and Kirloskar Oil are among high-profile companies that offered higher dividends to their shareholders. The rates of dividend, in fact, are the highest in recent years, going by dividend history of these companies.
“Higher dividend is usually an indication of better profitability,” said KR Choksey Shares and Securities Chairman Kisan Choksey.
“A good dividend track record helps in many ways. The company will be in a better position to raise funds from investors than those with poor dividend history,” he said.
Some analysts feel higher dividend payout need not strain a company’s financial health. Such a move is justifiable if a company is cash-rich and doesn’t require funds immediately for implementation of any project.
“A company should distribute a large amount of dividend only if it is able to generate incremental amount of cash every year,” said Anagram Capital CEO Mayank Shah.
A good dividend payout highlights the management’s confidence in the company’s prospects and helps in keeping shareholders’ morale high. It gives the company an edge over its competitors in terms of accessibility to the capital market for raising funds, added Mr Shah.
Crompton Greaves has paid a 110% dividend so far in the current year, compared to 100% in ’08-09 and 80% for ’07-08. The company reported a net profit of Rs 386 crore on sales of Rs 3,666 crore for the nine-month period ended December 31, ’09, compared to Rs 397 crore and Rs 4,659 crore, respectively, for the year ended March 31, ’09. Broking firm Anand Rathi Financial Services, in its recent research report, said Crompton Greaves has an adequate revenue visibility on account of the order backlog of Rs 6,100 crore and is expected to maintain its operating profit margin, which stood at 13.2% in April-December ’09, in future.
Engineers India is another major example where the state-owned consulting services major has paid a whopping 1,060% dividend (interim dividend of 1,000% and 60%) in the current year, compared to 185% and 110% in the previous two years.
According to analysts, the large dividend payout has been announced to benefit the government, which is the single-largest shareholder, ahead of divestment of the company. The government holds 90.4% in Engineers India, while institutional investors, including FIIs, own a 6.4% equity. Retail shareholding is only 2.7%. Engineers India reported a net profit of Rs 311 crore on sales of Rs 1,353 crore for the nine-month period ended December 31, ’09, compared to Rs 345 crore and Rs 1,532 crore in ’08-09.