Monday, October 29, 2012

PRIMARY MARKET: IPOS

With two IPOs hitting its shores one can finally see some sign of life in the primary market again. But is the market really ready? manish k. pandey acts investor... oops investigator!

But, despite the optimistic signs in the fund raising environment, there is a looming tsunami that threatens any momentum: the Budget has projected a deficit of 6.8% of GDP in fiscal 2009-10 and to finance this, the government will borrow about $80 billion from the market, which may further squeeze out the private sector, directly impacting their fund raising capabilities (Knowledge@Wharton). This statement certainly supports the contrarians who believe that the market still has a long way to go before it can finally take on to the IPO rush. “In reality, there is no rush of IPOs. It’s only media hype. Despite the secondary market being on an upward trend since March this year, we have had only 4 IPOs/FPOs raising Rs.4.43 billion. There was a huge expectation that this Budget would set the right tone for the secondary market, a prerequisite for the primary market. But, the immediate market reaction has shown that it is not very impressed,” avers Prithvi Haldea, Founder and CMD, Prime Database.

Certainly, a sense of stability in the secondary market is critical for IPOs to happen. This is because, one, when the appetite for listed stocks is also minimal, to expect new issues to find favour is hard and second, an issuer has to take a call of a stable market at least 30 days ahead (the time it requires to open and list an IPO). Since this stability or continued buoyancy is still not being seen, IPOs are not happening. In fact, as many as 17 companies are holding SEBI approval (typically the last hurdle in the launch of an IPO) for months now to raise Rs.69 billion, but are not daring to enter the market. “So at best, the next 3-4 months can see only 34 companies (holding and awaiting approval) hit the market,” says Haldea. Raison d’être: Issuers are finding the future outlook uncertain.

This can be seen by the fact that despite nearly 700 companies wanting to do an IPO, just four companies have filed their offer documents with SEBI since April this year. This certainly points out in the direction that the market is not yet ready for another big wave of IPOs.


Source : IIPM Editorial, 2012.

For More IIPM Info, Visit below mentioned IIPM articles.
 
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