Is IPO price manipulation back? Two recent issues have witnessed extreme gains & losses  

October 20, 2011

M and B Switchgears, which got listed today, dropped by 34%—and just about three hours later the stock jumped 200%. Two other IPOs listed yesterday—Taksheel Solutions and Flexituff International; the first closed 65% below its listing price, the other remained steady and closed 7% up. It looks like IPO manipulation is back with a vengeance

Moneylife Digital Team

The markets have been volatile over the past few trading session, but this just does not justify the extreme swings which have characterised the movement of the prices of newly-listed shares. Just three examples: M and B Switchgears (listed today) and Taksheel Solutions & Flexituff International (both listed yesterday) indicate that price manipulation seems to be going on in the IPO (initial public offering) market.

Those who have played the IPO game are not new to this phenomenon. Moneylife has analysed three different scenarios of IPOs listed in the past two days. Two have taken the extremes and one just stayed steady. This in fact summarises the state of the IPO market. But what’s stranger is that these games are played even as the market regulator SEBI (the Securities and Exchange Board of India) and the stock exchanges just stay mum over such obvious manipulation. M and B Switchgears—which had been assigned an IPO Grade ‘2’, indicating ‘below average’ fundamentals, had been subscribed 2.35 times by retail investors. The stock which had an issue price of Rs186, listed on the Bombay Stock Exchange (BSE) today at Rs180. By afternoon, the price fell by 34% to Rs118.65. But soon after, the price began to shoot up, reaching a high of Rs356, almost double the listing price and finally closed at Rs317.55.

This has been a striking contrast to Taksheel Solutions Ltd which listed yesterday and had a similar IPO grade as the above company. Taksheel had an issue price of Rs150 and managed to list on the BSE at Rs157—and went on to hit a high of Rs185. The stock then dropped by nearly 80% to Rs38.50 and closed at Rs55.85. Both the IPOs had enormous listing-day turnover of Rs518 crore and Rs431 crore. What’s more striking is that Taksheel Solutions had been subscribed 6 times by retail investors. The stock of Taksheel, whose trading had been frozen today at the lower end of the 20% circuit filter, closed at Rs44.70, 70% below the listing price (over 19th October).

Flexituff International was another IPO which listed yesterday. The IPO, assigned a ‘Grade 3’—signifying ‘Average Fundamentals’—was less volatile than the other two IPOs mentioned above. Flexituff’s IPO, which was subscribed 1.6 times by retail investors, listed at its issue price of Rs155. The scrip hit a high of Rs186 and a low of Rs142, closing 7% up from its listing price of Rs166. The stock closed today at Rs160. In the normal course, behaviour of IPOs like these is usually not an issue. But it’s the two which have exhibited extreme volatility that are a cause for concern. The regulator needs to wake up to these facts and take corrective actions soon.