‘Aggressive pricing spoilt equity issues in India’


New Delhi : Aggressive pricing and poor advisors spoilt the initial public offer (IPO) market in India in recent weeks even as some big-ticket issues had to be called off due to lukewarm response, says the findings of a new survey.

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“While Indian stock markets have become structurally strong and well-regulated, bad pricing of issues and weak market sentiment have played spoilsport,” says the Associated Chambers of Commerce and Industry of India (Assocham) survey.

Assocham’s Business Barometer Unit found that as many as 105 out of 150 chief executives contacted for responses said they also did not believe the developments mean a collapse of primary markets.

India has emerged as one of the world’s largest primary market in recent years, with valuations crossing $8.5 billion in 2007, thanks to more than 100 companies coming out with their IPOs.

In recent weeks, while the issue of Reliance Power Ltd (RPL) plunged below the offer price despite being oversubscribed more than 75 times, other big-ticket offers by companies like Emmar MGF and Wockhardt had to be called off after poor response.

RPL Sunday even announced that its board of directors would meet Feb 24 to consider free bonus shares to shareholders to compensate them for the notional loss on account of its shares quoting below the issue price.

“While prevailing liquidity conditions in bourses play an important role in the successful listing of a company’s stock, valuations should not stretch into long future as it dampens investors’ appetite,” said Assocham President V.N. Dhoot.

The respondents felt public offers can be revived if good issues hit the market with attractive pricing. Companies that have lined up their offers should ensure appropriate price bands to avoid the adverse investor response.

Eighty-four percent of the respondents also felt that the withdrawal of primary issues was commonplace even in mature and developed markets.

Regarding the role of investment bankers in evoking good market response, a fair section of the corporate heads wanted them to give sound advice to their clients based on market depth and appropriate valuations of a company’s scrip.

Over 72 percent of the chief executives surveyed felt market intermediaries led to investors getting swayed in India, the chamber said.

“They also blamed the so-called grey market and wanted the regulator (Securities and Exchange Board of India) to come down heavily on manipulators who raise investor expectations in unofficial markets.”

The industry heads were not confident about the conditions in the primary market in the near future. Forty-five percent felt that the primary market outlook was likely to remain bleak for some time.

Another 56 percent said it was too early to pass judgment about the prospects of the primary markets as the year had just begun.

“Given the volatility in the markets the world over, the whole sentiment could change within a month.”