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Thursday, Sep 25, 2003

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Sunny days here again for IPO market?

K.S. Badri Narayanan

Chennai , Sept. 24

THE initial public offer (IPO) market may be coming full circle going by the performance of the issues that entered the market after January 2002.

As of Wednesday, the return posted by these companies varied from 39 per cent to 470 per cent on the offer price.

Since the current rally started on April 1, the Junior Nifty and the NSE-500 indices returned 76 per cent and 50 per cent, respectively while the return posted by these companies ranged from 35 per cent to 251 per cent.

Besides the healthy returns, investors have not seen any value erosion as the 52-week low for most of these companies is above the offer price or negligibly lower (very close to the offer price). Only Bharti Tele-Ventures' 52-week low, at Rs 20.65, was lower by over 50 per cent from the offer price level of Rs 45.

According to Mr Prithiv Haldea of Prime Database, which independently monitors the primary market, most of these issues, particularly from the banking sector, came out with reasonable offer price at an attractive P/E of 2-3, benefiting the investors post-listing.

He said the primary market had been dead for quite some time, with investors adopting a "safety first" approach.

But investors turned to equities as interest rates in the bond markets had declined.

Both 2001-02 and 2002-03 were disasters for the IPO market, with only six companies each raising Rs 1,082 crore and Rs 1,039 crore, respectively. This was in sharp contrast to more than 1,000 IPOs hitting the market in financial years 1994 and 1995. But the number fell to fewer than 100 annually from financial 1997.

There was a brief revival at the height of the dotcom boom in 1999-'00, but the demise of many of those issues only intensified investor suspicion.

Even under the bullish condition, according to Mr Haldea, the retail investors' participation in i-flex Solutions was low, indicating investors were cautious while the banking IPOs were flocked to on twin advantages of the PSU-tag and under-pricing.

Mr Haldea said investors needed to be cautious on the IPOs. "It is very important not to chase the price, but the value."

Whenever the markets are in bull-run, several companies enter the primary market with attractively priced offers. But it is the investor who has to assess the promoters' track record and litigation or defaults before subscribing into the issue, he added.

The success of some recent issues may renew hopes for fresh IPOs, particularly that of Tata Consultancy Services. TCS, part of the Tata group, is expected to raise Rs 4,000-5,000 crore by offering an equity stake of 10 to 15 per cent through its IPO.

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