The recent correction in the broader market has left the portfolios of retail investors in the red, largely attributable to stretched valuations.
Are you one of the grieving retail investors who lost 30-40 per cent in this market correction?
Do you think you could’ve exercised better discretion and been a bit smarter? What if we told you ‘You are not alone’ and that another set of investors, who are presumed smart, could be thinking alike?
Yes, they are the institutional investors, the likes of mutual funds and FPIs, a.k.a. ‘smart money’, who poured in crores of rupees in QIPs (qualified institutional placement) in calendar 2024 (CY24).
A grand sum of ₹78,679 crore was raised by 54 companies (mainboard, that is, non-SMEs) in CY24. Zomato’s ₹8,500-crore share issue, Adani Energy Solutions’ ₹8,373-crore IPO and a ₹5,000-crore issue each by Prestige Estates and Punjab National Bank top the chart. The value of this near-₹80,000-crore fund raise, in today’s prices, is ₹66,090 crore. That’s a 16 per cent erosion.
While at the aggregate level this may not seem overwhelming, the situation is worse when analysed at the individual QIP transaction level (see infographic).
Top losers
There was a total of 54 QIP issues in CY24. Of these, only nine have made money for the institutions that subscribed to these QIPs so far.
The rest have resulted in losses (difference between the current and the issue price of the QIP) ranging from 2.8 per cent all the way up to 51.8 per cent, at an average of 22.2 per cent.
You wouldn’t exactly call that smart, would you? Of course, in some cases the smarter institutions would have exited at profit or lower losses before the deeper crash, but our analysis found many instances of institutions holding on to the shares.
Three QIPs resulted in losses above 40 per cent, 11 between 30 per cent and 40 per cent, 10 of 20-30 per cent, and 21 QIPs lost less than 20 per cent.
Looking at individual QIPs, to list down the biggest losses by percentage and size of the QIP, Adani Energy Solutions’ ₹8,373-crore issue lost 23.4 per cent, Prestige Estates’ ₹5,000-crore issue 31.7 per cent, Samvardhana Motherson’s ₹4,938-crore issue 32.7 per cent, Adani Enterprises’ ₹4,200 crore issue lost 24.2 per cent, and Sona BLW’s ₹2,400 crore issue has lost 25.1 per cent.
Disregarding the size of the QIP, going purely by the percentage of loss, these companies top the list — Jupiter Wagons 51.8 per cent, GPT Infraprojects (45.1 per cent), HCC (40.7 per cent), Hi-Tech Pipes (38.6 per cent) and Vishwaraj Sugar Industries (36.7 per cent).
Double whammy
On the brighter side, though, gains of 102.7 per cent, 98.1 per cent, 65.3 per cent and 37.8 per cent from the QIPs of Pearl Global Industries, Ami Organics, Lloyds Metals & Energy and Sky Gold, respectively, are noteworthy.
After a successful QIP, companies report a list of institutions (allottees) to whom more than 5 per cent of the shares issued in the QIP are allotted.
Going by those reports, domestic mutual funds feature prominently, subscribing to over 40 per cent of the shares offered on an average. This is a double whammy for retail investors, as it is their money at stake, though through mutual funds.
Life insurance companies, too, have thrown their hats in the ring.
What is worth noting is that these institutions have subscribed to QIPs even at triple-digit PE (price-earnings) multiples (at QIP issue price) and it showed in the under-performance in case of companies such as Zodiac Energy (PE/stock returns since QIP in percentage: 108x/ -36.1), Zaggle (130x/ -29.6), Adani Enterprises (109x/ -24) and Adani Energy Solutions (123x/ -23.4).
While QIPs of companies such as Ami Organics, Transformers & Rectifiers and PG Electroplast have fared better with returns of 98.1 per cent, 26.6 per cent and 25.5 per cent, respectively, albeit subscribed at PE multiples of 116x, 245x and 155x, respectively, it remains to be seen whether such high valuations would be sustainable, given the current uncertainty rocking global markets.