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Software mania turns to IPOs

Mar 17, 2000

According to Prime Database, around 101 information technology (IT) companies are expected the hit the primary markets and collectively raise Rs 50 bn. These are companies who have already announced their plans while many others are gearing up to follow the IT boom. Majority of the recent IT IPOs which came have got oversubscribed on their offer price by many times. The figures for the last three years shows that there was not a single issue from the IT sector in 1997-98. This figure rose to 4 IT IPOs in 1998-99 and to 35 IPOs in 1999-2000. The aggregate value of these issues jumped from Rs 380 m in 1998-99 to Rs 14.9 bn in 1999-00. Even the average size per issue seems to have gone up from Rs 95 m in 1998-99 to Rs 425 m in 1999-00 an increase of nearly 350%

Infact the mobilisation on account of IT IPOs in 1999-00 was more than twice the amount that was raised in the entire decade for all IPOs. For the coming fiscal this figure is expected to be much higher.

The reason for this IT IPO boom stems from the fact that the IT sector has been performing very well both in the domestic as well as international capital markets. Apart from this boom venture capitalists who funded many of these software companies have encouraged these players to tap the markets so that they could exit at a better price.

However investors need to be overly cautious on the quality of the IPO issues which will come out in future. There are many small time and start up software ventures wanting to raise funds without any clear business plans. Apparently there are also many NBFCs who have changed their names to suggest that they are in the software business and would be tapping the primary markets.

The RBI to prevent any eventuality and as a precautionary measure has issued stringent guidelines to banks who have been lending for applying for new issues. They do want the banks to be saddled with bad loans.

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