There could be a retail nightmare in store for mega issues in the future. Retail investors are not enthused by the mega public offerings of India Inc with these issues failing to get enough response to the quota reserved for them. The muted response by retail investors has prompted a section of merchant bankers even demanding a change in the current quota system and more retail participation.

Consider these figures, ICICI Bank which floated a Rs 9,000-crore mega issue recently just managed to get the retail portion fully subscribed while the institutional investors’ quota was oversubscribed by nearly 22 times. DLF which also raised Rs 9,000 crore witnessed its retail quota getting subscribed only 98 per cent in a bullish market. Said Hemendra Kothari, chairman, DSP Merrill Lynch, “certainly we need more retail investor participation. I would say the retail response to the mega issues was satisfactory. But we will have to reach out to more retail investors in tier-II and III cities. That will also push up costs. We will have to watch the investor response in the next six months before coming to any conclusion or making changes.”

ICICI Bank was forced to give a discount of Rs 50 to retail investors and also offered a part-payment system to attract small investors to its follow-on issue. “Retail investors will go for follow-on issues only when the shares are available at substantial discounts. If the issue price is close to the market price, investors can always pick up the shares from the secondary market,” said Prtithvi Haldea, MD of Prime Database.

... contd.