The Hindu Business Line : `IPOs not at risk; pricing may be more realistic now'

Good for investors
Apart from RPL and UBI not a single issue was oversubscribed on the first day.
A `wait and watch' policy would be best applicable to IPO issuing cos.

Mumbai , May 23

Recent reports that there has been a `dramatic' fall in response to IPOs are based on the data of the initial two days of the issue, says Prime Database. It is untrue that investors have left the IPO market, said Mr Prithvi Haldea, Managing Director, Prime Database. This is true of most IPOs since September 2005.

Since the time SEBI has imposed margins on qualified institutional buyers (QIBs), most bids now come only on the last day or on the day prior to the closing day, as it does not make sense for them any more to put in bids in the early days of an IPO. "By the same logic, and given the validation that the QIBs provide, most of the applications from the highly leveraged HNIs as also the retail come on the very last day," Mr Haldea said.

Prime Database analysis shows that apart from Reliance Petroleum and Union Bank of India, which sold 7.5 times and 1.87 times respectively, not a single issue was oversubscribed on the first day. Issues of Jagaran, R Systems, Plethico, Opto Circuits, Visa Steel and JK Cement of above Rs 100 crore garnered only 0.0 to 0.1 per cent of amount on the first day.

In the current market scenario, although certain issues have been caught in the meltdown and may not receive overwhelming subscriptions, according to Mr Haldea's assessment, they would definitely sail through. The company would receive the desired money and the investors will get higher allotments.

Also, issue pricing will now be more logical as there is a fall in the market. "We may now see more realistic pricing and that is good news for the investors. On a fundamental level, we should understand that an issuer can no longer price his IPO at his own will, because unlike the 90s, the new SEBI guidelines require that at least half the IPO should be subscribed to by the QIB," he said.

Wait and watch

However, a `wait and watch' policy would be best applicable to IPO issuing companies if the markets were to slide any further or turn volatile as investors would not be able to get the valuations they deserve as IPOs cannot be re-launched, he said.