Jun 5, 2000|
IPO – Reason for the ‘downturn’
The boom in the secondary market, especially in information technology stocks, has created a cascading effect on the primary market. We have seen a flurry of Initial Public Offerings (IPO) in the raising a whopping Rs 33,366 m, in the first three months of FY00 alone. But suddenly investors are now vary about IPOs. Why has this happened?
If one takes a brief look at the post-listed prices of the recent issues, many companies are trading much below their offer price. This has led to disillusionment among investors who thought that every issue, irrespective of its fundamentals, would turn out to be a gold mine. This has led many companies to postpone their issue plans.
Much has been talked about the melt down of NASDAQ and battering of the software stocks being the main reason for the slackness in the primary market. But there is one more critical issue i.e. the quality of the IPOs that are storming the market. There have been issues from companies, which have yet to set up the infrastructure and are yet to commence their operations. Both the lead managers and the Securities Exchange Board of India (SEBI) seem to blame each other for this. The lead managers are blaming SEBI for allowing the companies to price issues at high premiums and the latter is blaming the lead managers for the improper due diligence on their part.
But is the market heading for the same pit hole as the case was in 1994 when the finance companies were rocking the market? The solution lies with SEBI. Sometime back, SEBI waived the information technology companies from the compulsory three years profitability track record for Initial Public Offerings. On the other hand, the lead managers should also be more responsible. Unless SEBI takes some immediate steps to regulate the primary market, history will repeat itself.
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