Mumbai: It has been a roller-coaster three weeks since India’s largest initial public offering (IPO), that of Reliance Power Ltd, closed.
Back then, if the premium that the shares commanded in the illegal grey market was any indication, investors were willing to pay almost double its Rs450 price. The Rs11,500 crore issue was subscribed in just one minute.
By the time the share lists today, two high-profile IPOs have been abandoned due to a lack of response. The Bombay Stock Exchange’s (BSE) benchmark index, the Sensex, has lost more than 3,200 points in that time.
So, how will Reliance Power fare? “It is like going to a restaurant. The food maybe very good, but if the ambience is not good, then your experience does get affected,” says Arun Kejriwal, director, Kejriwal Research and Information Services. “Nothing has changed for the issue itself, but sentiment in the market has changed, which will affect the listing price.”
Right after the issue closed, the market tumbled on global fears about the impact of the US subprime crisis. Two rate cuts by the US Federal Reserve within eight days and a Bank of England rate cut could not stem the flight of foreign capital from emerging markets.
“The hype that was there in the market is gone now,” says a head of research at a domestic brokerage who did not wish to be named, citing company policy. “This should affect the listing price.”
Power analysts, who had put a long-term buy rating on the issue because the prospects of earnings for Reliance Power were a few years away, now say that listing gains may also be somewhat muted.
“Valuations for the issue were overstretched because none of the projects is operational right now,” said Mehul Mukati, power analyst at Emkay Share and Stock Broker Pvt. Ltd.
Nitin Khandkar, senior vice-president of research at Mumbai-based brokerage Keynote Capitals, expects the share to list at a premium of Rs100-150.
The company has won two of the three ultra mega power projects, at Sasan in Madhya Pradesh and Krishnapattnam in Andhra Pradesh, but has so far not tied up fuel for the Andhra project. Its gas-based project at Dadri is dependent on gas supply from the Reliance Industries Ltd’s Krishna Godavari gas field. The gas supply agreement is currently being heard in the courts.
Another large IPO, that of Future Capital Holdings, which also drew huge investor response, listed at Rs1,100 on 1 February, a 43% premium, and it continues to hold ground. Future Capital’s share closed at Rs983.65 on BSE on Friday, down 2.04% from its previous close. During this time, the Sensex slipped 4.26%. The Rs491.34 crore Future Capital float was subscribed 133 times.