Mumbai: Initial public offerings (IPOs) hitting the market over the next few weeks could face subdued response, analysts said, after the Bombay Stock Exchange’s benchmark index, Sensex, witnessed its biggest intra-day fall in absolute terms.
“Ultimately, IPO pricing depends on market conditions,” said Devesh Kumar, managing director of Mumbai-based boutique financial services firm Centrum Broking Ltd. “There are two options for new public issues—to delay or to reprice. The success of an IPO, in terms of bids received, also depends on its marketing power,” he added, explaining the success of the IPOs of Reliance Power Ltd and Future Capital Holdings Ltd last week. The benchmark index has shed 16.9% since its lifetime high recorded early this month.
IPOs, which are generally looked at as safe investments, have been giving large and rapid returns in recent times, in line with the stock markets that experienced an extended bull run. That’s resulted in a huge appetite for IPOs among investors, but with bears taking over the street in recent days, new offerings are less likely to get the same response.
Many recent offerings, all listed at a considerable premium, are now trading at a significant discount to their offer prices. Nine out of 14 stocks that got listed in December are now trading at a discount to their listing prices and six of them are even trading below their offer prices.
Mankasia Ltd and Renaissance Jewellery Ltd closed at more than a 40% discount to their listing prices while two more stocks that entered the market last month have lost more than 37% since their listing. Porwal Auto Components Ltd, Precision Pipes and Profiles Co. Ltd and Manaksia Ltd are all down more than 32% from their offer prices.
“Reliance Power and Future Capital listings are very crucial at this time. It they list at considerable premiums, the interest in the IPO market will (be) sustain(ed). Till then it is expected to be very subdued,” said Deepak Jasani, head of retail research at HDFC Securities.
The Rs11,700 crore Reliance Power IPO was subscribed close to 73 times and Future Capital’s float was subscribed 132 times.
“Investors have very short memories; if, say, the eighth IPO from now gives good returns, they will jump on the IPO bandwagon again,” Jasani added.
In 2007, 106 IPOs raised Rs48,329 crore from the market. Investment bankers expect at least Rs1 trillion to be raised from the primary market through public issues in 2008.
IPOs that are set to hit the market over the next fortnight include those of Emaar MGF Ltd, Bang Overseas Ltd and IRB Infrastructure Developers Ltd. Emaar MGF is offering 102.6 million shares at a price band of Rs610-690. The $1.8 billion float opens on 1 February.
“If the market continues to fall, some of the firms that are planning to enter the market may decide to wait. We will advise them to do so. They can delay the float even after they receive the nod of the capital market regulator. This has happened in the past...,” said a senior executive of a domestic brokerage who did not wish to be named.