IPOs - NEEDS AN AGNEEPATH!

By Ruma Dubey

The news just does not seem to get good for the IPO market. Though there is a perceptible improvement in sentiments in the Indian secondary market, not even an iota of that small optimism seems to have percolated down to the IPO market.

As such things were not looking good. 2011 ended on an extremely dismal note. Sept 2011 saw a slew of questionable IPOs but after there was literally a famine in Oct and Nov with not a single issue and in December there was one brave hearted IPO from Goodwill Hospital , once again a dubious IPO and it was indeed a foolhardy decision as it had to withdraw its issue due to poor investor response. Out of total issue size of 35.43 lakh shares, the company received total bids for just 22,015 shares in all on the NSE and BSE combined. There were no bids from institutional investors, while the retail and non institutional investors applied for 1% and 1.83% of the shares reserved for them, respectively, making it among the worst public issues of all time.

In October we also saw the cancellation of IPO from Swajas Air Charters. Though its IPO was subscribed 1.72 times, it could not get full subscription from QIBs though it had reduced its price band and extended the closing date by a week.

The same dismal story seems to have spilled over into 2012 too. IPOs from four companies, worth Rs.700 crores have allowed their SEBI approvals lapse. Micromax Mobiles, Pride Hotels, Betul Oil and Tara Jewels were hopeful of coming out their IPOs in January, buoyed by the positive sentiments in the secondary markets. But as mentioned earlier, these moods did not percolate down to the primary markets and thankfully, these four companies took the same decision of postponing their issues rather than go ahead and then falling flat on their noses.  There are 10 more companies who have got the required approvals and within the next two months need to go public or else their approvals will also lapse.

In 2011, there were 29 companies who allowed their approvals to lapse, which included big names like Lodha Developers, Reliance InfraTel, Glenmark Generics and BPTP.  And early 2012 just seems to be a continuation of the same.

It will take a while for the moods to improve in the primary markets. What we are seeing in the secondary markets is a very cautious return of optimism; it is not like a wholehearted feeling of gung-ho. Traders and investors are seeing an improvement in sentiments but there remains a sense of caution as they feel that there are still many underlying tensions which need to be relieved to let go.

Moods in the IPO market could see improvement if we see sustained improvement in sentiments in the secondary markets. And for that to happen, the stress coming in from Euro debt, Q3 numbers and overall sense of despondency needs to be relieved. RBI has made the perfect move by reducing the CRR by 50 bps last week. And in the coming months, we will start seeing the interest rates come down gradually. And that will mark the turnaround the sentiments – to optimism with lesser caution.

That apart, the IPO market also needs a few solid issues. By solid we mean IPOs from fundamentally sound companies. There remains an appetite for good issues. Investors are sitting on cash and they are on the lookout for good issues. Thus one good company needs to have the courage to break this jinx, and then the rest will follow.

IPOs from PSUs are the need of the hour – for the Govt as well as for the revival of the sentiments in the IPO market. Hope the Govt or a good quality company wakes up from this coma and gets cracking!