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IPO's back into the limelight - Views on News from Equitymaster
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  • Feb 10, 2000

    IPO's back into the limelight

    Over the last few months the IPO (Initial Public Offering) market has picked up and there is a lot activity as subscription levels have been on the rise. A number of investors seem keen to park their funds for a short period giving high returns hence what better than a promising IPO.

    This is mainly because majority of the issues have got oversubscribed, especially in the IT sector. According to newspaper reports, of the 24 IPOs between June and December 1999 the subscription levels have varied from 1 to over 200 times. Sibar Software Services had a subscription level of 248 times on its Rs 25m issue size. Of the bigger issue Hughes Software issue size of Rs 2,756 m was oversubscribed by almost 27 times and Polaris Software's Rs 916.7 m issue was oversubscribed by 21 times. In the IT sector those institutional investors who did not get enough allotment in the IPOs are picking up shares from the secondary market. As a result Hughes Software is trading at six times over its issue price. The IT sector has been the flavour of the market as of the 35 IPO issues that have hit the market till date in 1999-2000, only seven belonged to the non-IT sector.

    The two other hot sectors, media and pharmaceuticals too got a good response. In the media sector TV Eighteen was oversubscribed 64 times and Glenmark Pharmaceuticals was oversubscribed 63 times.

    In the IPO market bank and finance stocks however have attracted lower interest levels, resulting in low subscription, Centurion Bank (3 times), Syndicate Bank (4 times), Euro Asian Securities (1 time), Noida Toll Bridge (2 times). However with the improvement in the economic scenario bank stocks in the secondary market are looking up.

    Though IT issues will continue to hit the market, there maybe some unknown ones and the quality of issues could deteriorate as some companies may want to encash on the current IT IPO boom. The flavour seems to have trickled down to media and pharmaceutical companies and many issues from these sectors are expected in this market.

    This buoyancy in the IPO market will result in funds flowing from the secondary market to the primary market as the good quality IPOs should provide returns to investors over a short period of time. On the whole the IPO market is hot currently, however some less efficient companies will take advantage of this, hence investors need to tread carefully on this and look at companies with better brands, management quality and earnings prospects and not just jump into a sector which is a favourite.



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