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QIP 22 - A tale of oversubscribed QIPs

QIP, or qualified institutional placement, is a process through which firms raise capital via sale of shares to qualified institutional buyers. Financial institutions across the country have been busy raising equity capital over the last few weeks building their war-chests for the issues that lie ahead.

In today's post, we cover how much they have raised and the level of investor interest in QIPs, and try to make sense of the interest they are seeing despite the ominous signs ahead.

So how much have they raised?

The short answer is - a lot! But we know you would want the details, so here are some of the top private sector QIPs.

The raise obviously comes during a very ominous backdrop - COVID hit just as we were beginning to recover, and the country's central bank expects bad loans to balloon to 12.5% by end of this financial year - the highest levels in nearly two decades. S&P paints an even grimmer picture with the number expected to rise to 13%-14%.

A straightforward story so far - stressful times ahead, so you would want to stack up your capital heading into it. At least that is what these large equity raises seem to be signalling.

But this isn't where the story ends. While we have looked at the supply, which is obviously quite high, how is the demand picture looking?

Investors march on

The investors march on - at least for now! The Axis QIP, for example, got over subscribed 3.5x, only to be trounced by the ICICI QIP that was 4x oversubscribed. If there are problems brewing in the banking world, it certainly isn't scaring the investors away. More importantly, it is worth noting that these are large institutions with years of experience in investing money.

So what gives

There are three primary reasons you would invest in a sector headed into doom. Let's try to tackle each of these separately and see which holds.

  1. The storm is not coming: The first could be a rather contrarian viewpoint that the storm isn't going to come, or atleast won't be too severe. Given the current data at hand, it would be fair to rule this out, or at least expect that a bulk of the investors who have entered aren't relying on this theory.

  2. The storm is in the price: The next is that a lot of the storm is in the price. While a lot of the other stocks have bounced back strongly from March lows, the recovery hasn't been that strong for banks. The Bank NIFTY is still down close to 32% from March highs, where as the broader market is down just 7%. This is an extremely plausible reason, and could well explain most of the interest.

  3. Last banks standing: The last, and perhaps slightly insidious hypothesis is that a strong storm will indeed come, but the marquee private names will stand tall through it, and will emerge stronger when the storm has passed, especially given its disproportionate impact on weaker banks.

In all likelihood the interest could be attributable to 2 & 3. Only time will tell whether the investors who got in now, made the right call!


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