Investors lose Rs 4000 cr in IPOs in 2011

The prolonged weakness in the capital market has wiped out Rs 4,000 crore of the wealth of investors in the initial public offering (IPO) market in 2011. The IPO market has been a big 'wealth destroyer' with only 9 public issues — out of 39 public issues that came during 2011 — trading above their issue prices. A whopping number of 30 public issues are trading below their issue prices, destroying the wealth of investors.

The total amount raised during the year through public issues is to the tune of about Rs 14,112 crore. As markets have severely corrected, on an aggregate basis, the current mark-to-market value of these public issues came down to Rs 10,014 crore. Hence, the public issue market of the calendar year 2011 has seen wealth erosion of Rs 4,098 crore, representing a mark-to-market loss of 29 per cent, according to SMC Global Securities.

"Such wealth erosion have made investors shy away from the public issue market, leading to shelving of several IPOs including the government PSU disinvestment plans. This huge wealth erosion may be attributable to tendencies of high pricing in public issues; and lower quality of public issues," said Jagannadham Thunuguntla, strategist & head of research, SMC Global Securities.

For example, Taksheel Solutions which came out with a Rs 83 crore IPO is now worth Rs 7 crore, a decline of 92 per cent. RDB Rasayans IPO of Rs 36 crore is now worth only Rs 4 crore -- a fall of 90 per cent.

With interest rates and inflation soaring and land acquisition becoming a major headache for mega projects, corporates have already slammed the brakes on big investment plans.

Bankers say there's very little interest in new projects. "Wherever a substantial commitment or outlay has been made, it is going ahead but there is very little fresh enthusiasm at this point of time. It is a combination of factors. While the cost of funds is one reason, it is more driven by the political and policy uncertainties," said a senior banker with a leading private sector bank.

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