Two-thirds of 2010 QIP trade at discount: Study

A study by CRISIL Equities revealed that nearly two-thirds (66 per cent) of Qualified Institutional Placements (QIPs) in 2010 have given negative returns, with 33 out of the 50 QIPs trading below their offer prices.

The total return on investments, as was measured by the difference in the offer price and the market price as on June 03, 2011, by all the QIPs was negative 19 per cent compared to a positive 2 per cent in the broader index, S&P CNX NITFY and negative 1 per cent in the S&P CNX 500, during the same period said Crisil.

Among the QIPs real estate, construction, IT and ITeS, and textile companies were the major underperformers. The study pointed out that improvement in the economic scenario led to a significant spurt in QIP activity in 2010, with 50 companies raising Rs 22,500 crore through this route. Financial services, real estate, IT & ITeS, construction and automobile sectors - comprising 20 companies - together raised Rs 12,500 crore or 56 per cent of the total QIP amount.

Said CRISIL Research Senior Director, Mukesh Agarwal, “Unlike an initial public offer (IPO), QIPs provide an easy investment alternative for the institutional investors since there is no lock-in period for the shares allotted through the QIP route. Also, investors know the offer price in advance and can earn higher returns if timed appropriately.”

Analysing the reasons CRISIL said that the recent governance-related issues and the RBI’s monetary tightening have dampened investor sentiments. “Fund raising through QIPs has dried up in 2011 and given the current market conditions, we expect investors’ appetite for QIPs to remain low. This coupled with the weak performance of the past QIPs may restrict investors from investing in the upcoming issues and companies may have to search for an alternative route for raising funds,” the study said.