IPOs bring warmth to mutual funds in December

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Fund managers have taken a liking to initial public offerings (IPOs). In December, one out of every five rupees was invested in new stock market entrants.

Dr Lal PathLabs, Alkem Laboratories, and Narayana Hrudayalaya launched their IPOs last month to raise a cumulative Rs 2,500 crore. Mutual funds invested around Rs 900 crore in these three health-care companies in December, according to a report by Edelweiss. According to Sebi data, mutual funds were net buyers to the tune of Rs 4,500 crore in the stock market last month.

Mutual funds invested in the anchor book as well as in the IPOs of all three companies. Industry players say many mutual funds were also buyers in the secondary market.

The three companies jumped between 30 per cent and 50 per on debut in a weak market. They sustained most of the gains despite the broader market falling sharply in January.

Alkem Laboratories, a leading pharmaceuticals company,  was the third-most invested stock in December by fund managers. Put together, they pumped in Rs 507 crore to buy its 3.4 million shares. The company's issue price was Rs 1,050 and it is currently trading 27 per cent higher at Rs 1,330.

Narayana Hrudayalaya had an issue price of Rs 250 and is trading at Rs 300. Dr Lal PathLabs, the first diagnostics company to be listed, had Rs 550 as its issue price and the counter is at Rs 722, up 31 per cent.

The Alkem and Dr Lal issues were subscribed over 30 times while Narayana was subscribed six times.

Schemes from the basket of the country's largest fund houses like HDFC MF, ICICI Prudential AMC, UTI MF, SBI MF, Kotak MF, Reliance MF, Birla Sun Life MF and IDFC MF invested in these counters.

Despite recent cracks in mid-cap stocks, the three newly listed companies have provided substantially higher returns after listing. This has provided a cushion to fund managers to make their schemes perform better at a time when markets are looking challenging.

“All these companies, in particular Dr Lal, have higher potential. The existing securities in pharmaceuticals were at a very high valuation. We believe the newcomers will do exceedingly well," said the chief investment officer (CIO) of a large fund house.

According to him, there needs to be more IPOs from such companies to absorb investment from domestic investors.

During the last one month, the pharma index has lost about five per cent of its value. Against this the new counters have continued to do well. Though they, too, have lost 16-22 per cent from peaks, investors are still in money.

In the last one year, exposure of mutual funds' equity assets to pharmaceutical stocks has risen by over a percentage point to above eight per cent. The move has come at a time when markets look jittery and investors are trying defensive bets.

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