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Suresh Krishnamurthy

The sheer size of the IPO-cum-offer-for-sale of TCS has raised concerns that prices may decline to accommodate the increase in supply. These concerns are exaggerated as large quality offers have attracted fresh funds and added to the market depth. This time, too, it may be no different.

THE size of the initial public offering of Tata Consultancy Services has raised concerns that it would kill the appetite for other stocks, especially from the IT domain. A section of investors consequently expect the market, represented by Sensex and Nifty, to remain depressed, at least temporarily.

History, however, tells us that such concerns are exaggerated. A quality equity offer is only likely to attract fresh funds into the market. They may be a positive for the market in the longer run as they serve to deepen and broadbase the market.

Exciting the market: The first mega public offer to hit the market was that of Reliance Petroleum in September 1993, with an offer size of Rs 2,172 crore. The size of this offer may appear modest given that the TCS float is expected to rake in about Rs 5,000 crore. Reliance Petroleum was, however, a massive one for the early 1990s.

The market capitalisation then was about a third what it is now. The liquidity in the market, represented by daily traded volumes, was also substantially lower — about one-tenth of the levels that prevail now.

In December 1993, SBI also came out with a Rs 1,400-crore offer. Still, these two offers did not make exacting demands on the market.

These mega issues only served to bring more investors into the equity market. Stock prices did not suffer as a result of these big-ticket offers, which came in the midst of a rising market, with the bullish phase lasting well into 1994.

Other large public offers too did excite the market. IDBI came out with a Rs 2,250-crore offer in July 1995. The Sensex gained in July 1995 and stagnated in August 1995 but subsequently rose in September 1995 too.

HCL Technologies came out with a Rs 800-crore offer in January 2000, when the capitalisation of the market was approaching Rs 10 lakh crore.

The offer sailed through and the market stayed in firm terrain in January and February 2002. Bharti Tele-Ventures launched its offer in February 2002, when the market was languishing in the aftermath of 9/11.

The market still firmed up in February 2002, although it was not able to sustain the momentum.

Unique period: Notwithstanding the positive response of the stock market to large public offers, the period since July 2003 needs to be seen as unique in the history of the Indian equity market. A series of large and medium offers have swamped the market since then.

Starting with the near Rs 1,000-crore offer by Maruti Suzuki, companies such as Patni Computer Systems, NDTV, Biocon, Dishman Pharma, Petronet LNG, Power Trading Corporation and Datamatics came out with their IPOs. Rights offers, too, have mobilised substantial sums.

The Government's disinvestment programme also raked in close to Rs 15,000 crore. ICICI came out with its Rs 3,000-crore offer in April 2004. Now, TCS has approached the market. There are more big-ticket offers, such as that of NTPC and several banks, on the anvil.

Matching supply and demand: Such large-scale demand for liquidity needs the support of investors. The supply of equity needs to be matched by the demand for it. If demand for equity declines, stock prices will decline.

Until now, FII interest has bolstered the subscription levels and led to sizeable inflows. In several offers, the FIIs have contributed 50 per cent or more of the amount mobilised. Mutual funds have added their mite.

Insurance companies, bolstered by subscriptions to unit-linked insurance plans, have been investing too. Retail investor interest has also risen. The TCS and NTPC offers are also likely to garner substantial institutional support.

Going forward, interest rates may hold the key. As long as interest rates continue to stay low, the need to add equities to the corporate or retail portfolios will force money into the equity market. If rates rise, however, the capital mobilisation plans of several Indian companies will suffer a setback.

(The Taking Count article published on July 18 had indicated that pension payments from Varishtha Bima were tax-exempt. They are not. It also indicated that the scheme offered valuable protection up to 15 years. The protection can extend beyond 15 years also. The errors are regretted.)

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