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Qualified Institutional Placements (QIPs) in 2010 have given negative returns- Two-thirds of 2010 QIPs trade at discount: Crisil
June 13, 2011:
A study by CRISIL Equities reveals that two-thirds (66%) 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 measured by the difference in the offer price and the market price as on June 03,
2011, by all the QIPs was negative 19% (median value of returns yielded by all the QIPs) compared to
positive 2% in the broader index, S&P CNX NITFY and negative 1% in the S&P CNX 500, during the same
period. Real estate, construction, IT and ITeS, and textile companies were the major underperformers.
Improvement in the economic scenario led to a significant spurt in QIP activity in 2010, with 50 companies
raising Rs 225 bn through this route. Financial services, real estate, IT & ITeS, construction and automobile
(including automobile components) sectors - comprising 20 companies - together raised Rs ~125 bn or 56%
of the total QIP amount. Adani Enterprises Ltd’s Rs 40.0 bn QIP issue in August 2010 was the largest
during the year. According to Mukesh Agarwal, Senior Director, CRISIL Research “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.”
CRISIL Equities further analysed that while two-thirds of QIPs are trading below their offer price, almost
half are trading at least 25% lower. In absolute terms, the market value of the funds mobilised through QIPs
has eroded by ~5.3% to Rs 213 bn. Real estate, construction, IT & ITeS, and textile sectors, which raised Rs
30.8 bn, have seen 31% erosion (maximum) in the value of funds mobilised with most of the stocks trading
30-50% below their offer price.
Mr. Tarun Bhatia, Director - Capital Markets, CRISIL Research adds, “Companies generally prefer
the QIP route for fund raising when the market is on a bull run. However, recent governance-related
issues and the RBI’s monetary tightening have dampened investor sentiments. Fund raising through
QIPs has dried up in 2011; 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.”
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