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Steep valuations keep MFs out of IPO zone
By siliconindia
Mumbai: Mutual funds seem to be immensely cautious in the wake of an uncertain market and steep valuations while investing in public issues. Most funds have not been investing - or are barely investing for listing gains - in public issues over the past eight months, reported the Economic Times.
This approach is being reflected by quality issues too. Eleven funds had invested only $47 million in the DLF public issue, which opened for subscription in June 2007. Likewise, there is evidence that over 170 funds invested only $28 million in the public issue of Power Grid. Power Grid was listed on October 5.
"Generally speaking, mutual funds investing into public issues look for plain listing gains when valuations are high. Several issues launched in the second half of 2007 were overpriced. It doesn't make sense to hold over-valued stocks over a longer term; the strategy, therefore, is to dump on listing and buy back once prices have deflated," said a leading fund manager on conditions of anonymity.
A year ago, fund houses were eager on shoring up shares of every IPO that hit the market. A lot of domestic banks were also investing heavily in public issues then. However, this stopped when the market corrected steeply in March 2007.