IPO markets typically bloom towards the last leg of a secondary market rally when investor sentiments are buoyant and promoters find it easier to raise money at high valuations. This is a typical feature of every bull phase in primary markets and the same has been reinforced by the fact that the Coal India IPO in October 2010 and its subsequent listing in early Nov 2010 coincided with the short term peak in secondary markets formed on November 05,2010. In light of the above and having regard to the current sentiments in the secondary markets,it seems that IPO markets are unlikely to see much activity in the next few months. Investors,after having burnt their fingers in most IPOs that were launched in 2010,are likely to stay away from the primary markets in the near future,till the time secondary market sentiments improve. Indian companies raised more than Rs 69,000 crores in 2010 by way of IPOs/FPOs with notable contributions from Coal India (Rs 15,199 cr),NMDC (Rs 9,930 cr),NTPC (Rs 8,480 cr),Power Grid (Rs 7442 cr) and REC (Rs 3,530 cr). Three out of these top five IPOs/FPOs (by size) did well and are trading higher than their issue price whereas the other two,NTPC and NMDC are down 13 per cent and 7 per cent respectively from their issue prices. A look at the performance of IPOs launched in 2010 and so far in 2011 reveals that out of 72 such issues in 2010,50 i.e. almost 70 per cent are presently trading below their issue price. The downside is as big as 75-80 per cent in some cases with the average downside for losing IPOs being close to 40 per cent. There have been some gainers too such as Jubilant Foodworks and C Mahendra Exports that are trading higher by about 281 per cent and 122 per cent from their respective issue prices. Coal India,that had come up with the largest IPO in Indian history,is also trading higher by 41 per cent from its issue price. Given that the performance of most of the recently launched IPOs has been poor,investors might take some time to come back to primary markets. The weak sentiment in primary markets has reflected in 2011 which has seen only nine issues so far,raising a paltry Rs 4,440 crores,with the only notable issue coming in the form of Tata Steel FPO (Rs 3,477cr) in January 2011. As on March 18,2011,the stock was trading at a discount of 2.3 per cent to its FPO price. Looking at the IPO/FPO pipeline in the near future,45 companies have filed their papers with SEBI and have received approvals that are valid as on March 11,2011. They together plan to raise approx. Rs 39,500 cr. Noteworthy among them are Jindal Power (Rs 7,200 cr),Sterlite Energy (Rs 500 cr),Muthoot Finance (Rs 1,400 cr),Lavasa Corp (Rs 2,000 cr),L&T Finance Holdings (Rs 1,500 cr),Hindustan Copper (Rs 4,000 cr) and Gujarat State Petroleum Corp (Rs 3,050 cr). Nearly 60 companies have filed their papers but are waiting for approval as on March 11,2011. Together they plan to raise Rs 17,000 cr. The bigger issues in this group are mostly from real estate players like Sahara Prime City (Rs 3,450 cr),Kalpataru (Rs 1,000cr) and Emaar MGF (Rs 1600 cr). Apart from the above 105 odd companies that have filed their papers,there are a number of mega issues in the pipeline too,mostly from PSUs and forming part of the disinvestment plan of the Central government. Though these companies are yet to file their papers with SEBI,indications are that their issues will most likely come in the fiscal year 2011-12. These include ONGC (Rs 13,500 cr),SAIL (Rs 8,000 cr),Power Finance Corp (Rs 5,600 cr),Indian Oil (Rs 2,000 cr) and RINL (Rs 2,850 cr). Out of these,only Power Finance has filed its papers till now. Others including ONGC and SAIL are likely to file papers some time in the next fiscal. Earlier,these issues were planned to take place in 2010-11 itself. These were however delayed due to weak market sentiments. One of the reasons for delay in FPOs from ONGC and IOC was higher oil prices and the inability of the government to deregulate the price of diesel leading to them being postponed to fiscal 2011-12. However,given the current market scenario and the slow progress on diesel price deregulation,it seems that most of these issues should take place only after the first quarter of 2011-12. Indian Oil (IOC) is likely to place its FPO by the end of 2011-12,whereas,those from ONGC,SAIL and RINL should come in the second quarter of 2011-12 or beyond. Only PFC is likely to launch its FPO in the first quarter of FY12. Author is Vice Chairman and MD,Bajaj Capital
