Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial

Mindtree has listed, and cost of IPO funding


Mindtree solutions has listed today on the NSE. (See my IPO analysis). It turns out that the issue was phenomenally oversubscribed (100 times) and the allocation basis is now available.

If you had applied in the retail segment, you would have got only 15 shares regardless of the amount of application. And that if you were lucky, because the selection of people to get these shares were on random selection. For the lowest lot (15 shares), only 3 out of every 86 applications were given allotment (3:86 ratio). For the highest retail size (225 shares) the ratio was 52:99 (nearly one in two). But all successful allottees got only 15 shares.

Now the share has listed today at around Rs. 627. This is nearly 50% higher from the IPO price of Rs. 425. But you have to consider the cost of the IPO itself, for you. Let me show you how this might work against you.

Let’s say you borrowed Rs. 96,000 to invest in this IPO, at 18% interest. That’s 1.5% per month and you think, I will invest and give the money back on listing after a month. You then apply for 225 shares (Rs. 95,625) and wait.

Now you are a lucky allottee and get 15 shares, and it lists at Rs. 627. How much do you make as profit? Rs. 3,030. But in this one month you have to pay an interest of Rs. 1,440 for the amount you borrowed. Your real profit after all things are considered, is around Rs. 2,000 – which is next to nothing!

But what if you have the money in your bank account? Even then, the cost of the money for 225 shares is about Rs. 630 (at 8% bank deposit rate). and the net profit you end up making is Rs. 2,500 or so. That’s a good 2.5% in a month – which is definitely a good deal! But a) you should be lucky to get the allotment and b) sometimes refunds get delayed and that can hurt because of the paperwork involved.

Also there is a significantly lower return if you are investing high amounts (greater than 1 lakh). Allocations to HNIs was a lower ratio, and the returns were lower. Like if you notice the basis of allocation, an application for 23 lakh shares got an allocation of 18,537 shares. That’s an investment of Rs. 100 crores, for a net profit of 38 lakhs, translating to only 0.4% of the money invested.

But this is one kind of IPO were there was huge oversubscription. Others may not involve that. For instance the Opto Circuits FPO last year (at Rs. 270) was just about subscribed – and that was a follow-on issue, with the existing share price on the last day of the issue going at Rs. 300 – people did not even invest with an obvious 10% gain! And the company has since given a 1:1 bonus and the current share price is Rs. 270 – a 100% gain in a year. (Listing gains were quite high since the share moved to Rs. 450 within a few days)

My point is: IPO investing is not a guaranteed good thing. For small amounts it does have a value, but if you want to make big gains, you should analyse every issue carefully.


Like our content? Join Capitalmind Premium.

  • Equity, fixed income, macro and personal finance research
  • Model equity and fixed-income portfolios
  • Exclusive apps, tutorials, and member community
Subscribe Now Or start with a free-trial