GEORGE MATHEW(With inputs from Swarup Chakraborty)

MUMBAI, MARCH 16: It’s already a summer of discontent for the primary market. The all-round optimism that was visible at the beginning of 2008 has suddenly paved the way for pessimism. With bears raising their ugly heads again, the plunging markets across the world have put paid to the mega plans of Indian companies to raise big money from the capital market.

Consider these figures. Initial public offers (IPOs) by Indian companies worth $13.7 billion (Rs 68,000 crore) are either held up or postponed. And companies that recently raised funds from the public are faring equally badly — 18 out of the 24 IPOs that hit the market in the last three months are quoting below their offer prices. This means big losses for investors.

Though the subprime-hit global IPO market has been facing turbulent weather over the last one month, the problem has been more acute in India. In 2008, withdrawn IPO volumes totalled $14.3 billion from 14 deals — larger than those launched in the region so far this year. “Asia (ex-Japan) IPO volumes totalled just $11.7 billion from 66 deals in 2008. A string of mega-IPO deals from India accounted for the bulk of withdrawn IPO issuances with BSNL, Emaar-MGF, DLF Offices Trust and Unitech Office Trust, which together totalled $13.7 billion worth of withdrawn IPOs,” said a study by Thomson Financial.

Prime Database managing director Prithvi Haldea had estimated in January this year that the primary market might witness 150-175 public issues, raising about Rs 75,000 crore ($18.75 billion). The IPO pipeline might become Rs 1,90,000 crore strong with many companies announcing their plans to float mega IPOs, he had estimated. Now most of them — like UTI AMC, Sterlite Energy and JSW Energy — are waiting in the wings for the market to turn better.

The month of February was particularly bad for the IPO market. The withdrawal of the Rs 7,000 crore IPO by Emaar MGF set the ball rolling for the primary market’s woes. The sustained fall in the stock market (the Sensex has fallen by over 5,000 points in two months) has exacerbated the perilous situation and investors have turned cautious about overpricing of IPOs.

Shares of many companies that hit the market in the last three months have tumbled below their offer prices. Reliance Power, which created a big hype in the market, is now quoting at around Rs 337 against the IPO price of Rs 450, a fall of 25 per cent. Future Capital, promoted by retail king Kishore Biyani, is now trading at Rs 481 against the issue price of Rs 765, a decline of 37 per cent. Brigade Enterprises, which offered shares at Rs 390, is now quoted at Rs 191, showing a big fall of 51 per cent.

Experts say valuation and post-listing performance of IPOs, too, are important. “We believe that the primary market is fundamentally sound. There will be a market for good quality companies to come to the IPO market. But issuers would have to adjust valuations in light of the recent market movements,” opined DSP Merrill Lynch India chairman Hemendra Kothari.

Certainly, the performance of recently listed IPOs leaves much to be desired. And it will remain a question mark for promoters and investment bankers.

“Investors also evaluate the post-listing valuation of a firm, which means the speculative demand for the stock after it is listed. So, from that point of view too, an IPO should be fairly priced to generate interest among investors,” said Avendus head of equity research Anand Shanbagh.

Investors who have remained invested in newly listed companies like Reliance Power have suffered huge losses. Unless the stock market sentiment improves, it is unlikely that these investors will try their luck in IPOs again.

In doldrums again

• In 2008, withdrawn IPO volumes total $14.3 bn from 14 deals

• Majority of 150-175 firms that had planned to tap IPO market are holding on to their proposals

• 5,000-point fall in Sensex has affected IPO valuations

• But experts say IPOs of good quality companies at right prices will come and do well

editor@expressindia.com