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IPOs: Prospects under cloud

Mar 15, 2001

The carnage of TMT scrips on the bourses has taken a toll on the Initial Public Offering (IPO) market. IPOs have progressively dried out. Having said that, there are some factors, which could probably bring cheer to those companies that have been postponing their issue plans for quite some time.Mr. Yashwant Sinha, in his Budget for the year 2002, has made an important amendment to stimulate the IPO market. Effective from April 2001, long-term gains if re-invested in public issues would be exempted from purview of tax i.e. any long-term gains, say gains from sale of equity or a mutual fund, if invested in an IPO will not be taxed. But there is a catch here. There is minimum lock-in period of one-year. This could potentially encourage investors to invest in an IPO.

After a dry spell, a number of companies have filed their draft offer document with the Securities and Exchange Board of India. This include three media issues namely, Manipal Media, Nimbus and UTV whose public issue have been delayed by six months atleast. Reportedly, these companies have again postponed their public issue due to depressed market conditions. Interestingly, two trading companies have also filed their offer document that includes Datum and Raj Securities. However, there is only one offer document filed by an IT training company, St. Angelo Computers.

CompanyIssue size (Rs m)SectorLead Manager
UTV Software Communications MediaKotak Mahindra Capital Company
Raj Securities 13 InvestmentFinancial Management Sevices
St. Angelo Computers 35 IT TrainingBrescon Corporate Advisors
Nimbus Communications MediaSBI Capital Markets
Manipal Media Network 1,336 MediaSBI Capital Markets
Datum Securities 13 InvestmentFinancial Management Sevices

But will these issues sail through successfully? This primarily depends on sentiment in the secondary market. Given the fact that the benchmark BSE Sensex has fallen by 14.6% in the last one-month (14th February to 14th March 2001) and the battering that the TMT scrips are witnessing, the prospects of these issues would remain under a cloud. Secondly, on the valuation front a lot of the existing established companies in all sectors are looking very attractive. This could further channelise funds into the secondary market vis--vis primary issues.

So, until SEBI takes corrective action to bring in more transparency in the markets and restore investor confidence, these companies should keep their fingers crossed.

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