“It’s wait & watch for all of us”

IIPM : EXECUTIVE EDUCATION

As gloomy market conditions continue to dampen investors’ appetite

Sanjay Hegde
Executive Director, PricewaterhouseCoopers

Whether the upcoming slew of big issues is able to revive the overall market sentiment or would have no impact at all, is to be seen to be believed. However, recent history has shown that PSU divestments have generally helped in reviving the market sentiment...

The general bearish sentiment in Indian capital markets has meant that the pipeline of IPOs is not robust enough as compared to the last year. The negative trend in the primary market was in tune with the movement in the secondary market. The BSE benchmark index Sensex has lost as much as 31.71% till August 26, from its lifetime high of 21,206.77 points on January 10, 2008.

Dull market conditions since mid-January this year have dampened investors’ appetite so much that more than 70 companies, including Reliance Infratel, MCX, ICICI Securities, GMR Energy, are now either holding back or have withdrawn their IPOs (which together were expected to raise more than Rs.400 billion) till global markets stabilise. In fact few of them have consequently allowed their IPO approvals to lapse and are awaiting better times to enter the primary market. However, that is about to change if the recent filings with SEBI are to be believed at face value. After a rather lack-luster eight months of 2008, the primary capital markets are headed for interesting times ahead.

In fact, Indian companies are lined up to raise an estimated $17 billion from 56 public issues during the last four months of 2008 (Thomson Reuters). This list includes some big names like Adani Power (Rs.56.30 billion), Future Ventures (Rs.26.60 billion), Bharat Oman Refineries (Rs.24 billion), NHPC (Rs.16.70 billion) and Oil India (Rs.14 billion) to name a few. These include companies who had deferred their issues due to valuation concerns. They have been waiting for return of positive sentiment in the markets for some time now. However, due to genuine business needs, it might be difficult to delay their fund raising plans. It will definitely be interesting times for merchant bankers to market these high-profile issues in these ever-so increasing turbulent and uncertain markets.

Whether these slew of big issues (if and as and when they happen), will be able to revive the overall market sentiment or would have no impact at all, is to be seen to be believed. It would be difficult to stick one’s neck out to say either way, since markets have a strange way of countering any one view. However, recent history has shown that PSU divestments have generally helped in reviving the market sentiment provided they have been priced at a reasonable discount for investors to lap up the same. This might hold true for other than PSU issues also. Also, the SEBI has done its bit in helping the revival of gloomy primary market cause by amending the rules on collection of IPO money. As per the new guidelines, retail investors’ money will remain in their bank accounts till allotment. Also, it recently reduced the duration for a rights issue from 109 days to 43 days. However, companies that were planning IPOs just because the market was giving money, can, simply wait for better times. Same holds true for firms where IPO was a disinvestment. With a rising fiscal deficit and an unstable political environment, it might be difficult for the government to justify selling its stake in PSUs at lower valuations.

Hence, the verdict is really hard to predict. History has shown that revival of primary markets lead to better secondary markets and vice-versa. It has happened in the past and may happen now also. But, it’s wait and watch for all of us now.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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