By Abhijit Deb, IANS
Mumbai : Investor sentiment for initial public offerings (IPOs) in India is turning tepid following the mega issue of Reliance Power. Adding to this are uncertainties plaguing the secondary markets, which compel some companies to withdraw their IPOs due to poor investor response.
The prestigious Wockhardt Hospitals Ltd’s IPO of last week became the first casualty of uncertainties in the markets when the Habil Khorakiwala-promoted company had to withdraw its issue from the capital market due to unexpected under-subscription.
Analysts said the UTI Mutual Fund and Oil India, which propose to access the markets next week, may have to realign their price bands after moves to that effect by real estate giant Emaar MGF and Wockhardt Hospital Ltd.
Similarly, IPOs of V-Guard Industries in the price band of Rs.80-85 and GSS American Infotech in the price band of Rs.400-450 are scheduled to be thrown open for subscription next week.
“The sudden fall in the markets has spelt doom for IPOs. They would have had promising prospects under normal circumstances,” said Deven Malkan, a noted market analyst and editor-in-chief of Fortune India magazine.
“In the case of Wockhardt Hospital, the issue itself was highly overpriced,” Malkan told IANS, suggesting that the momentum created by the Reliance Power issue, the largest ever in India, had raised hopes of other companies.
While corporate profits and private equity fuelled the IPO growth story in 2007, this year the fear of impending recession in US markets has hit the Indian IPOs market hard.
According to Ernst & Young, Indian bourses in 2007 raised a whopping $8.3 billion from 95 IPOs, which was the fifth largest and the seventh largest in terms of the proceeds of the year globally.
During 2006 the Indian market had seen 78 IPOs raising $7.23 billion.
But the momentum created by the sunshine Reliance IPO in early 2008 has suddenly gone awry in the market volatility.
Vikash Hemani, co-head, Institutional Equities in Edelweiss Capital Limited, said the contingency measure of slashing the price band will hardly work as investors now have an option of picking up their preferred stocks in lower price which have been hit by the market volatility.
Citing the instance of May 2006, Hemani said that when the Sensex tumbled by more than 1,400 points a similar trend was observed with new IPOs such as GMR Infrastructure, Tech Mahindra – investors were muted towards all these issue. But later on they recovered with the market gaining momentum.
Seeing the upbeat mood in the market, quite often promoters of the company start to expect too much; and the problem arises when the market falls.
On the positive side, he pointed out: “Now again we will see the trend of decent and realistic pricing.”