Market’s new spectre: IPOs

Stock markets across the globe, led by Wall Street, have been going downhill with the US, the world’s largest economy, hurtling towards a big slowdown. The Morgan Stanley Barra Emerging Market Index has already fallen 14.04 per cent over the last one month.

The market falls in 2008 have been the maximum in China and India, where they have declined 20.05 per cent and 18.57 per cent respectively. “But I feel the depression in the IPO market is temporary. The market will bounce back soon. This has happened several times in the past. It’s only a temporary setback,” said Ajcon Global chief executive officer Ashok Ajmera.

But when will the IPO market come back?

Nobody is sure. And the US economy, the major culprit behind the worldwide stock fall, is still giving out bad news almost on a daily basis.

The stakes are quite high both for India Inc and Dalal Street investors. For, 2008 is supposed to be the year of the IPO.

As many as 150-175 public issues have been lined up, in a bid to raise about Rs 75,000 crore. This would be the highest ever mobilisation in a year, the current record being Rs 45,176 crore in 2007. In 2006, Indian companies had raised Rs 24,679 crore.

Out of the Rs 75,000 crore targetted for this calendar year, about Rs 60,000 crore would be through IPOs and the balance Rs 15,000 crore through FPOs, according to Prithvi Haldea of Prime Database. Even if only the 70 documents filed with SEBI at present are to materialise, it will result in a mobilisation of over Rs 35,000 crore, with the complete year still ahead. The pipeline was Rs 1,90,000 crore strong, Prime said early last month. Now with the scenario taking a turn for the worse, many of these calculations are likely to go wrong.

The fate of the IPO market is linked to the stock market. If the globalised stock markets fail to stabilise and continue to fall, the IPO market too will remain depressed. And, looking at the global deluge of bad news, it appears that the bear hug will continue for some time.

However, several analysts believe that the situation is not as gloomy as is being made out. The Indian economy is not slowing down the way those of the EU or the US are doing. “Even if the stock market is slumping, a correctly priced IPO with strong fundamentals won’t have any problem. Proper pricing is the key,” said Ajmera.

Many others agree.

“The IPOs that were withdrawn had to face the wrath of the prevailing sentiment. More than anything else, it was the reservation on the part of investors to park their money in new public offers. Another reason that could have impeded the participation was valuations. I believe the companies were valued pretty high,” said Birla Sun Life CIO A Balasubramanian.

For India Inc, it’s going to be a small setback on the funds mobilisation front. Many companies, which had planned investments in new projects and expansions, will now have to wait till the dust settles. For big companies, which can take the debt route and tap internal resources, it is not a big worry. But many medium-sized companies, especially in the infrastructure, real estate, retail and entertainment sectors, will find it tough to get public funds and list their shares on the exchanges.

But as Dalal Street veterans say: the market will bounce back.

When? That nobody knows.

(With inputs from Swarup Chakraborty)

Withdrawal Syndrome

• Two dozen top firms across the world have shelved IPOs over the past month

• The virus spread to India last week, with Wockhardt and Emaar MGF scrapping issues

• 150-175 public issues are lined up in India for 2008

• If globalised stock markets fail to stabilise, IPO market will stay depressed