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Will IPOs revive?

Aug 16, 2000

The Initial Public Offer (IPO) market has been dull for the last two months after one and half years of euphoria. Why has this happened? Is it becauselo of the worrying economic scenario or as a result of a weak sentiment in the bourses or is it because of the NASDAQ meltdown? Any which way, it has resulted in creating awareness among the investors that investing in IPOs may not give the same astonishing returns as it used to be, every time!After a flurry of IPOs during FY99 and early FY00, many good companies have decided to play the wait and watch game. They have postponed their Initial Public Offering plans till the investors’ confidence is reinstated as they are expecting good premium to their offers (especially, the media companies), which at the current state, the market may not be willing to shell out. A few of them have even shelved their IPO plans and are looking for other means of funding.

While big companies have been postponing, the smaller information technology companies are clouding the primary market. The market is still witnessing information technology issues at par, with an issue size ranging between Rs 10 m to Rs 20 m.. The main objective of the issue being, to buy necessary hardware & software, land & buildings and to fund the working capital requirements or to setup overseas branch offices, for which the Reserve Bank of India’s permission is yet to be received. Moreover, many IPOs are trading at huge discount to their offer prices. Due to this, recent IPOs have been receiving poor response from the investors. In fact, Arraycom Limited has returned the money raised from public meanwhile Creative Eye, SIP technologies have withdrawn their IPO plans after receiving not-so-impressive response.

If the sentiment in the primary has to improve, three major concerns looming over the investors have to be addressed i.e. the quality of the issue, the management of the company and the pricing of the issue. This is possible only when the Securities Exchange Board of India (SEBI) places stiff norms for these software companies.

With more than 500 companies (software, media, telecommunications) lining up to tap the market, the IPO market would see some flare only when these concerns are taken care of. Is the regulator listening?

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