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IPOs to make a come back

May 29, 2009

With the indices soaring by nearly 85% in recent times, market sentiments have definitely improved. And with this, talks of initial public offerings have started to heat up again. After almost a 15 month quiet period, IPOs are set to make a comeback

However, this time around it is believed that the issuance will be selective and focused on public owned companies. State-owned companies such as NHPC Ltd., Oil India Ltd. and Rites Ltd. are likely be the first set of companies, raising up to Rs 38 bn (US$ 789 m) from initial public offerings in coming months.

Analysts are of the belief that the excitement will not spill into the primary market unless the issues are accurately priced. By accurately priced, they mean that the prices should factor in the market conditions considering the slowdown in the domestic economic growth. However, as the above-mentioned companies are state-owned entities, they can afford to come at a cheaper price considering that the government is in need to plug the budget deficit.

However, all said and done, we are hoping that investors and "listing day gains seekers" may have learnt their lessons with some 'overhyped' public issues of last year.

As Benjamin Graham writes in his 'The Intelligent Investor', "In every case, investors have burned themselves on IPOs, have stayed away for at least two years, but have always returned for another scalding. For as long as stock markets have existed, investors have gone through this manic-depressive cycle." Graham further writes, "In America's first great IPO boom back in 1825, a man was said to have been squeezed to death in the stampede of speculators trying to buy shares in the new Bank of Southwark. The wealthiest buyers hired thugs to punch their way to the front of the line. Sure enough, by 1829, stocks had lost roughly 25% of their value." Weighing the evidences objectively, intelligent investors should conclude that IPO does not stand only for 'Initial Public Offering'. More accurately, it is also a shorthand for - It's Probably Overpriced, or Imaginary Profits Only, or even Insiders' Private Opportunity.

Inflation remains at 0.61%
For the eleventh week in a row, inflation (as measured by the wholesale price index, WPI) has remained below the figure of 1%. For the week ending May 16, the figure stood at 0.61%, unchanged as compared to last week. A key reason as to why the numbers are believed to be low is the higher base effect. During the same week last year, the inflation figure was 8.66%. While there are a set of people who believe that inflation could rise steadily over the coming few months as the higher base effect will taper off, some are of the belief that the ample liquidity in the system will add to the rise.


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