IPOs lose their sheen in volatile markets

Sandeep Singh
Posted online: Thursday, January 24, 2008 at 2357 hrs

New Delhi, January 23: As markets gather themselves after a two-day bloodbath with an 864-point rise — still over 3,200 points lower than its January 11 perch — the uncertainty is now moving to the primary market.
J Kumar Infraprojects, whose initial public offer (IPO) closed today, managed a subscription level of 1.76 times by 4.00 pm; Cords Cable Industries, on its second last day of issue closing remained undersubscribed.
No doubt, these are trying times for raising capital through IPOs. First, Reliance Power IPO, which was oversubscribed by 72 times, sucked out retail liquidity from the market. Then, foreign institutional investors pulled out. Finally, margin calls broke the Sensex’ back, leading to a fall of over 4,000 points (almost 20 per cent) in seven trading days.
While there are several IPOs gearing to mop up funds for their public issues, getting a subscription level of the kind that prevailed a couple of week back will be tough.
“If the market remains volatile for the next couple of days, many IPOs, open now or about to open, might have to either increase their public issue open period or go in for a downward revision of their price band,” said a senior official of a leading investment bank.
But companies, which should be concerned about their issues devolving, are putting up predictably brave faces. “As of now we are sticking to our plans and are confident of getting a good subscription,” said a top executive of OnMobile Global whose IPO opens for subscription on January 24. What if things don’t turn out as expected? “We will then take our call.”
“We are fully confident of getting subscribed even though the markets throws concerns,” said a senior executive of Emaar MGF, whose Rs 7,000-crore IPO opens for subscription next month.
This turnaround in the market and the related expectations is just two-days old. Only a week ago, the question among investors buying IPOs was how many times the issue would get subscribed by and hence how many shares will be allotted to retail investors.
Low subscription levels have another consequence: low, or perhaps negative, listing gains. Which, when looked at from the fundamental’s side, is good: long term investors, backed with research, buying companies with strong fundamentals get an opportunity to buy cheap.