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IPO scene: Heating up!

Jun 24, 2002

The IPO market that had been plagued due to poor sentiment and lack of investor confidence for nearly 3 years now, is witnessing a revival of considerable proportions. According to data available from a research and database firm, the total value of IPOs lined up in the current year is estimated to be around Rs 300 bn (US$ 6 bn). This would be a significant jump compared to Rs 74 bn (US$ 1.5 bn) raised in the past five years, an increase of 300%. The amount of capital raised so far in the current year totals Rs 12 bn by way of IPOs launched by Bharti Televentures, Punjab National Bank and i-Flex.

IPOs made in 2002 (Rs bn)Rs bn
Bharti Televentures8.3
i-Flex2.3
Punjab National Bank1.7

IPOs planned (Rs bn)Rs bn
TCS50.00
BPCL10.0
IOC16.0

Also, there has also been a significant change in the way IPOs are being executed. IPOs launched during the year have been executed through the 100% book-building route (a method by which shares are auctioned after a minimum floor price is set). The book-building route gives the investors a chance to make an informed decision as to what premium they would like to pay for the shares of the company. The method followed previously was that of a fixed price where the company would fix a premium against the par value, to which the investors had to necessarily subscribe.

The new set of IPOs seem to defy old market wisdom. Not only were these launched against a backdrop of a depressed secondary market, but the all the three IPOs also saw good public response. This indicates a significant shift in investor sentiment towards the IPO market. However, the encouraging response by the public may have been due to the fact that the companies that came out with IPOs had already established businesses and the funds that were generated were for further expansion rather than setting up the business itself.

Improving economic prospects, accelerated pace of privatisation and lack of alternate investment avenues may also be some of the other reasons for the improved sentiments towards the IPO market. Early figures indicate that the Indian economy is on the path of a revival. The pick up in the disinvestments pace has seen a lot of public sector banks and enterprises offering a part of their stake to the public. Investors are being given a choice of investing in companies in which they had no prior accesses to.

Having said all the above we would like to point out that for any primary market to work efficiently, investor confidence is the key. During the tech boom, investors got duped by fraudulent promoters whose only aim was to cash in on the boom. Investor confidence in the primary markets seems to be returning, although slowly and hence it is even more imperative that adequate checks and disclosures be in place so that retail investors are not taken for ride and can make informed investment choices. But more importantly, the onus rests on the investors as well. Investors need to conduct a thorough research before investing in a business and the management of the company; after all it is their hard earned money.

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