Euphoria in the IPO market - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Euphoria in the IPO market

Dec 23, 1999

In what could be termed as a revival in the primary issue market, initial public offerings (IPOs) in recent months have evoked euphoric responses from investors - both retail and corporate. However, as compared to the boom in the early years of this decade, there are marked differences this time. There are key structural differences as compared to the IPO market boom in the first half of the decade. First is the widespread and easy availability of IPO financing, which has permitted investors to take on leverage while applying for new issues. A significant aspect is the narrow investor focus on issues of software, pharmaceutical and media companies. Another key difference this time is the participation of mutual funds in the IPO market. These factors have increased the liquidity in the market leading to large over subscriptions.

The recent issues that have evoked a good response are TV18 (media) and Glenmark Pharma (Pharmaceuticals). While TV18 has been oversubscribed by 51 times, Glenmark has recorded an over subscription of over 55 times. Jointly, the two issues have evoked responses worth over Rs 54 bn. Even these amounts stand dwarfed against the HCL Technologies offering which managed to evoke a response in excess of Rs 200 bn.

Although this may seem as 'irrational exuberance' to many, the quality of offer documents has infact substantially improved over those in the previous years. This is mainly due to the fact that the regulator, The Securities and Exchange Board of India, has taken numerous measures to prevent fraudulent companies from accessing capital markets via this route. The confidence level in the market has tremendously improved since the 1994 primary market debacle.

Some factors that need to be considered are the effects of the secondary market on the IPO market and the possibility that some dud issues may enter the market. These two factors can have a critical bearing on the IPO boom. A decline in the secondary market could deal a deathblow to the IPO market as expectations of returns on listing of issues dramatically reduce.

The euphoria is currently centred on the software, media and pharmaceutical sectors as the listed stocks in these sectors have recorded dramatic gains over the past few months. These gains cannot continue to grow indefinitely at rates recorded in recent months and this could lead to expectations being marked downwards in the near future. The other concern is the possibility of some dud issues entering the market. This could significantly alter the risk perceptions in the market, affecting even good issues.

The course the stock markets take in the future is surely going to affect the fortunes of the IPO market. However, the possibility that some unscrupulous promoters would try to capitalise on this euphoria is what should be of prime concern for the regulator.

Equitymaster requests your view! Post a comment on "Euphoria in the IPO market". Click here!

  

More Views on News

Ride the Indian Real Estate Revival with this 'Different' Smallcap Stock (Profit Hunter)

Mar 23, 2021

Affordability in the housing segment has never been so good in last one and a half decade. Here's how you could make the most of it...

My Latest Stock Recommendation (Fast Profits Daily)

Oct 9, 2020

How I picked an exciting stock using trends from both the commodity and equity markets.

Data is the New Oil but It's Also the New Sugar. Here's How to Fight it (Profit Hunter)

Jun 1, 2020

Is too much data hurting your quest for market beating returns?

Quantum Mutual Fund: Hum woh nahi hain (The Honest Truth)

Apr 29, 2020

Ajit Dayal on how the mutual fund industry robs you of your wealth.

This One Trigger Could Turnaround Yes Bank's Stock Price (The 5 Minute Wrapup)

Oct 16, 2019

If Yes Bank manages to do this, it could be the start of a much-needed turnaround for the bank.

More Views on News

Most Popular

A Critical Update on the Market (Fast Profits Daily)

Mar 30, 2021

In this video, I'll tell you why I am recommending caution in the market at this time.

My Recent Recommendation Will Profit from the Global Supply Chain Crisis (Profit Hunter)

Mar 31, 2021

A tiny chemical company, started in the Licence Raj era, is a great example of a new wealth creating opportunity.

My Stock Trading Strategy (Fast Profits Daily)

Mar 31, 2021

In this video I'll show you exactly how I go about picking stocks for trading.

What You Need to Find Hundred Baggers (Profit Hunter)

Mar 30, 2021

100 baggers of the last decade share this common trait. Here's how to use it to nail future multibaggers.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS