IPOs - Damsel in distress
The scenario of the Initial Public Offerings (IPO) market is as bad as the secondary market. We have been observing many companies going for an IPO to raise money from the public. We have also seen in this highly volatile market, no one is able to guess at what price a company would get listed. The year 2000 saw an overwhelming IPO market. Many companies rangingl industries like Information Technology, media, telecom, pharma have gone for an IPO. A brief look at these IPOs and their status in the market now.
It is almost six years since the 1994 boom for IPOs and 8 years since the security scandal. It is repeating now. There were hardly any issues all these years ie. between 1995 and 1999. Since January 2000, plenty of companies have gone for an IPO. But it is once again the IT industry, which has dominated the field. All the small IT companies established few years ago and all the startups also went for an IPO and took advantage of the market conditions.
There were just 30 offers in 1999 as compared to over 100 IPOs in 2000 till the month of August. And many more companies have already filed their prospectus to SEBI, out of which 40-50 companies got cleared and are in queue of opening up. There are another 25 companies awaiting SEBI clearance.
In early 1999, the market seemed encouraging and few companies came out with an IPO but soon the Kargil war had battered the movement. Then in late 1999, the companies started with the IPO regime and the early 2000 has been the best period for the companies. But how many of the companies, which went for an IPO are really benefiting the public? In 1999, many companies went for almost par issue except for few companies like Hughes Software(Rs.630), Kale Consultants(Rs.120), Polaris Software (210), HCL Technologies (580). The year 2000 has been a fantastic year for these companies and for the new companies as well. The companies which went for an IPO at premiums in 1999 also went to high values and have really benefited the investors.
There were some companies which tried to capitalize on this boom in 2000 and went for high premiums. The investors who thought of riding the IT wave are already finding their multi-bagger dreams going sour. Many IT companies which have raised more than Rs.2000 crore are plagued by sharp price depreciation. Even though many were oversubscribed heavily, today most of them are traded at steep discounts. To go by the wave, almost 150 companies have changed their name to suggest IT activity. Mascot Systems, a Rs.5 share issued at Rs.480 is quoting at around Rs.280 on 6th September 2000, Zenith Infotech issued at Rs.110 is quoting at Rs.94. Softsol issued at Rs.95 is traded at Rs.76. Softpro, issued at Rs.85 is at Rs.48. Cadila health Care, issued at Rs.250 is quoting at around Rs.132. Cinevista, issued at Rs.300 is at Rs.230, Elder Pharma issued at Rs.110 was at around Rs.69, Shree Rama Multitech, issued at Rs.120 was quoting at Rs.84. And many other scrips which opened in April- May 2000 were listed at almost 50% discounts.
The vagaries of the stock market has not only shaken the confidence of investors but also the corporates. While many companies have shelved the plan of IPO, few of them have revised their price almost reduced by 50%. Creative Eye, which was opened in July 2000 at a floor price of Rs.225 had received just 76 applications and were forced to resubmit their draft prospectus to SEBI and are expected to go for the issue sometime later in the year. SIP Technologies, which was supposed to open in July at Rs.235/- have called off their issue. MRO-Tek, supposed to open in July at Rs.140 has been postponed to September and at a floor price of around Rs.90-100.
So seeing all this, there has been a confusion among the investors where they have to put their money in, either secondary markets or in primary markets. There has been a general perception that the secondary markets are too risky and primary markets are risk averse to some extent. But it was proved that both seem to be the peers in pushing a person in abyss of losses. The markets prove that both are equally bad. However, the crash of Sensex in the recent times has really educated the investor and has made the investors cautious about their investments.
K Venu Babu