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India Inc Eyes IPO Season

Corporates believe strong secondary markets may make investors eye IPOs

With Sensex doing a volte-face and the expected political stability adding to the euphoria, a sigh of relief is sweeping over India Inc. After a gap of almost 12 months secondary markets are showing signs of stability and the corporate world is getting ready to tap the primary markets for the much need cash, after a year gone by wherein funds had virtually dried up for them. Among the quickest movers is Indiabulls Real Estate, which has opted for the Qualified Institutional Placement method to raise $600 million or Rs 2,656 crore.

Though there has been much activity seen on the filing of draft prospectuses with the Securities and Exchange Board of India (SEBI), but there are many big names waiting in the wings for signs of a revival in secondary markets to acquire strength. In 2009 till date, 6 companies have filed for new issues with SEBI. Biggest among them is the Adani Power issue which aims to raise close to Rs 2,200 crore.

According to revised SEBI regulations, companies will have a period of 12 months after getting approval, to come up with the initial public offer (IPO). By that reckoning, there are 28 more companies that become eligible to tap the primary market.

Some of the big names that are contemplating approaching the public for funds through new issues include names across a spectrum of sectors like Godrej Properties, Thomas Cook, and Mahindra Holidays and Resorts India Limited. According to the data compiled by SMC Capitals, 18 firms are planning to hit the capital market with a combined total of Rs 7,405 crore. This includes the big ticket IPO of Oil India of Rs 1,400 crore and NHPC’s Rs 2,060 crore.

With a political environment favourable to disinvestment, if the Congress-led UPA administration manages to pull that off after totally ignoring it during its last term, 2009 might end up seeing as many as 6 PSU public issues, including the likes of BSNL, railway consultancy firm RITES, National Aviation Company and others. All of these may become great lures to bring back retail investors into the market, who, so far this year, have opted to stay away. However, they may have had valid reasons as till March 9, markets were still quite shaken and down. They have stirred back to a vigorous form of life now.

It’s a matter of debate whether IPOs are good or bad for the retail investors. In 2008 the performance of most of the big ticket issues of 2007 was totally disappointing as their prices were ruling under their listing price in January itself. Even now, hardly any of them have recovered enough for the investors to book decent profits.

Generally, new issues get subscribed at the highest level of the price-band, but after listing they turn in a dull performance. But equity markets minus a primary market is unthinkable. Because this is the route where sweat-equity gets converted into moolah.

This is where the high risk venture funds get transformed into mammoth returns — think Dhirubhai Ambani. You can hate them to your hearts content, but you cannot deny that enormous gains can be made only via primary issues. In fact, that is the route through which the Indian retail investor’s attention was first caught by some very smart businessmen. In secondary markets the returns or losses get limited by those pesky circuit-breakers, as happened in general on May 18, or keeps happening to specific scrips on virtually a daily manner, but in IPOs there aren’t any limits.

However, caution is advisable. When you eagerly fill up the application form please check out the company’s financials as well as its well-being on a varied cross-section of scales and sectors, even the global ones, before deciding that you are buying into a bargain!

Initial Public Offers
Firms having SEBI approval for IPOs    Approx. Size (Rs cr)
Adani Power   5500.00
NHPC   2060.00
Future Ventures India   2000.00
Oil India   1400.00
Pipavav Shipyard   700.00
C Mahendra Exports   244.04
Pradip Overseas   200.00
Mahindra & Holiday Resorts (India)   189.92
Mayajaal Entertainment   125.00
Arss Infrstructure Projects   120.00
Gini & jony   110.00
Raj Oil Mills   106.02
Kabirdass Motor Co.   81.28
Excel Infoways   77.27
Globus Spirit   77.00
Infinite Computer Solutions (India)   67.46
Chiripal Industries   53.00
Astec Lifesciences   49.22
Sea TV Network   46.02
Mid Valley Entertainment   43.00
Usher Eco Power   36.00
Rishabhdev Technocable   26.43
Thinksoft Global Services   -