The Hindu Business Line : The great IPO rush

Prior to the TCS IPO, there was hectic activity in the grey market. The frenzy heightened when the price-band of Rs 775-Rs 900 was announced, as most market players expected a price around Rs 1,000. Premium in the grey market soared to Rs 200.

Yeh ladki bhi haath se gayee (This girl has also gone from our hands)". These were the words of Ishaat Hussain, Finance Director of Tata Sons, just after the official announcement of the initial public offering (IPO) of Tata Consultancy Services (TCS) at a press conference in Mumbai.

The most prestigious and also the most valuable jewel in the crown of the Tata Group fold was finally hitting the primary market, after more than five years of media speculation.The much-awaited equity offering from the House of Tatas surprised many. Not because the Tatas were offloading a portion of their stake in the company or that it was the largest private sector offering. The pricing of the issue was what astonished market functionaries. The issue price in the band of Rs 777 to Rs 900 for a Re 1 paid-up share was much lower than the Dalal Street expectation of a four-figure mark. At this price it was very easy for brokers to sell the issue. "After the official dates were announced, we started getting enquires from our clients about the forms," says the chief of primary market at a leading domestic broking firm in Mumbai, which mobilised over Rs 2,000 crore in the TCS IPO.

The price was obviously not an issue of concern despite the size of the IPO. The challenge before brokers was the servicing that investors had needed in the aftermath of the ONGC share allotment fiasco. Says a broker in Mumbai, "Several investors who applied to the ONGC public issue neither received the shares nor the refund order. So their biggest concern was what would happen to their money in the TCS IPO."

Yet another challenge was to reach out to investors across the country considering that over 5.5 crore shares were on offer, an equity offering that seconded only the ONGC issue, India's largest public offer till then. Since the Tatas are a household name in India, there was a huge demand for TCS shares from small investors. Moreover, an IPO from the Tata group had come after 12 years. The Indian investors' appetite for Tata group companies' shares can be gauged from the response the Tata Timek (now Timken India as Tatas have sold their stake in the company) IPO received in 1991, just a few months before the Harshad Mehta scam in 1992. Demand for this company's shares were so high that the Tata Timken IPO application form was sold for Re 1 (there is no cost for IPO forms) and the issue was oversubscribed 4,200 times. This continues to be a record in the Guinness Book of World Records.

No such trailblazing records were created by the TCS IPO; but it did propel the grey market to a heightened activity. Brokers say the frenzy in the grey market picked up further when the price band of Rs 775 to Rs 900 was announced, as most of the brokers were expecting a price of at least Rs 1,000. Premium in the grey market, which started from Rs 75, reached a high of Rs 200. Even during this period, several investors who had sold their shares at Rs 75 premium, returned to the buyers to either cancel the deal or take Rs 75 and close the deal. "It was after a long time this kind of grey market operations was seen," says a broker who was involved in several grey market operations in the TCS IPO.

The demand for TCS was not only from local investors, but also from overseas investors. "There are a large number of Indian IT professionals in the US and they called up my office for application forms. Since they are from the IT industry they know the value of the company," says a broker in Mumbai who has a large number of NRI clients. However, many US-based NRI investors were unhappy that they could not apply for the issue, as the issue had closed by the time they could submit their applications. "Considering such a situation, there should be a provision to download IPO forms," says a primary market broker with NRI clients, some of whom were not able to apply.

For investors of small town Amalner in Jalagaon district of Maharashtra — the original hometown of Wipro — it was rain that played spoilsport."Several of my clients' forms could not reach Mumbai on time due to heavy rains which blocked the roads," says Sunil Maheswari, a sub-broker and investment consultant in Amalner. Many of his clients applied for the TCS IPO from the dividend received from Wipro shares. Most of the investors in this town have made it big from Wipro shares during the technology boom between 1998 and 2000. "Many investors feel that TCS shares could fetch them big returns in the next five years, just as Wipro did," says Maheshwari.

For TCS, the IPO was a major challenge; the company had to conduct road shows in 21 Indian cities and 13 overseas cities, and that too in seven days. The company formed four core teams comprising senior officials for this purpose.

"It was very challenging for the TCS team not only to conduct the road shows but also take care of the logistics such as hotel bookings, travel and transportation," says Atul Narain Takle, Vice-President (Corporate Communication), TCS, and a core team member.

The other big challenge was placing advertisements in more than 150 publications and the electronic media, says Takle. The whole exercise was not without its share of hiccups. As the IPO was on the verge of closure on August 5, a leading Marathi daily in Pune came out with a TCS advertisement a day earlier, saying, `IPO closes today'. "Brokers started calling us from Pune asking how the IPO could close earlier than the stipulated date," says Takle. But the damage was done and as part of the damage-control exercise, the TCS team gave out more advertisements on the radio and local cable channels that the issue would close on August 5 and not a day earlier.

The shares were listed on August 25, but for the company the job is far from over. It now has more than 11 lakh shareholders and the greatest challenge before the company is meeting their expectations.

Investors are a demanding lot and, like Oliver, always want more! There is already speculation about a bonus in the next one year, as Infosys and Wipro gave liberal bonus shares to their shareholders earlier this year.

Picture by Paul Noronha

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The great IPO rush

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