The primary market is in a deep slumber

IIPM’s 36th Glorious Year of Academic Excellence

The primary market is in a deep slumber. Even the renewed indications of a global meltdown have just started creeping in. So the simplest thing for the companies planning to dive into the capital markets now is to wait and watch, feels Gyanendra Kashyap...

Samat is literally terrified at the mere mention of an IPO (Initial Public Offering); and why not, his euphoric success in terms of gains from IPOs has dampened like never before. Little did he realise the strong correlation between the primary and secondary market – as the secondary market tanks the primary market goes in for a long slumber. Like anyone else he too was taken in by the fact that the 2007 success story of IPOs (wherein 3 out of every 10 gave returns of more than 100%, 3 eroded the shareholders wealth and the remaining gave returns much higher than the benchmark index) will continue in 2008. To add to the greed of Samat and his ilk, the January sell out of the largest IPO, Reliance Power, which sucked Rs.100 billion out of the market within minutes, laid a solid foundation for bullish expectation from the market in the future to come. But unfortunately, the bullishness started and ended there. What happened to Emaar MGF and Wockhardt’s fund raising plans thereafter is well known. Well, the secondary market which was at its meteoric heights early on in the year has so far tanked over 30% and moving parallel the primary market offerings have also witnessed a sharp decline (35 in first 7 months of 2008 as compared to 65 for the same period in 2007).

Meanwhile, one can see a few gladiators marching ahead to reverse the situation. But, the question remains, will the forthcoming big IPOs be able to woo institutional as well as retail investors and help the market get going? Samat who has burnt his fingers avers, “Capital markets and investor sentiments determine the success of an IPO; as compared to last year the public markets today are not so receptive to IPOs.” Sounds logical indeed!

The non receptiveness of the market was very much evident during the Emaar MGF IPO process, wherein despite two rounds of price cut and a deadline extension it failed to attract investors and finally had to withdraw the IPO from the market. A very similar story holds true for Wockhardt. Both the companies moved out of the market citing the adverse market conditions. The fact that IPOs just do not happen in a free fall corrective market is reflected by the retardation in the number of listings (75, 96, 112 and now 35 respectively in 2005, 2006, 2007 and 2008 year to date).

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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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