Looking forward to apply on the IPO of 4 companies within a week? Know how much to apply

Initial public offering (IPO) is the most popular sector of Capital Market in Nepal, with larger investor participation than the secondary market. Its popularity is associated with perceived lower risk, ease of access and application and so on. Only a few years ago, every IPO that hit the market irrespective of sector used to get oversubscribed by huge number.

However, after the market got hit by liquidity shortage the charm subsided. In addition, the bearish market trend and few shares' prices going below par of Rs 100 added to it. On the bright side, the market literacy improved a bit and investors started looking at company fundamentals before investing. As a result, few IPOs even went undersubscribed.

The table below comprises a list of all the IPOs that were floated this fiscal year along with the number of applicants for each issue. The higher number of applicants indicate more attraction and positive outlook from the side of investors for that company.

*Union Hydro IPO is still ongoing and *Madhya Bhotekoshi IPO is for members of EPF

The table above leads us to infer that the charm in Microfinance sector is certainly high. However in case of Hydropower sector a unique distinction can be seen. Investors tend to invest in larger projects but are indifferent to smaller projects.

Going forward

Now the subject of concern is how much to apply for the upcoming issues. Rasuwagadhi HEP and Sanjen HEP are issuing 1.02 crore and 54.75 lakh units respectively from 6th Baisakh (today). Similarly, Nepal Agro Laghubitta Bittiya Sanstha is issuing 1.61 lakh units from coming Sunday i.e. 8th Baisakh and finally Ganapati Microfinance is issuing 3.35 lakh units from coming Monday i.e. 9th Baisakh, 2076.

Therefore, a total of 162.3 lakh units shares will be floated.

Why is 'How much to apply?' important?

When we apply for any IPO, the money will be frozen until the shares are allotted after the completion of the issue. Since, 4 issues are coming back-to-back small investors might end up with lesser funds than is required for all issues and for larger investors, the money might get held up for nothing.

Thus, based on the trend we have seen, we recommend you to apply for following number of shares for each issue.

There are more than 14.86 Lakhs DeMAT accounts registered in Nepal. As per the provision, investors are allowed to hold two DeMAT accounts at a time, however, some investors have more than 2 DMAT account. Thus, we can assume that there are around 12 Lakhs individual who have DMAT account in Nepal.

Thus, by considering the above data, we can expect a minimum of 2-2.5 lakhs investors for the two microfinances' IPO. The Microfinance sector will pull a lot of investors, so are bound to get heavily oversubscribed and the allotment will be based on lottery. Therefore, for both the microfinance companies we recommend you to apply for 10 units, which the minimum that needs to be applied.

Similarly, in case of Rasuwagadhi HEP and Sanjen HEP, the expected number of applicants is 1.5 lakhs. However, given the project sizes and fundamentals, we recommend to apply 60 to 70 units for Rasuwagadhi HEP and 30 to 40 units for Sanjen HEP.