Liquidity crunch seen in secondary market

With the slew of initial public offers (IPOs) slated to open in the coming days, market players expect a huge flow of money into the primary market at least for the next couple of months.

At least seven other IPOs, including J Kumar Infraprojects Ltd., Gamon Infra Projects, Cords Cable Industries, KNR Infrastructure, Wockhard Hospital, Manju Shree Extrusions and Techpro Systems are likely to open this month for subscription.

Next month would witness the mega IPO of Emmar MGF, which is believed to be raising over Rs 5,000 crore. The other top IPO, which many have set their eyes on is that of Oil India Ltd.

Ajay Bagga chief executive officer, Lotus India Mutual Fund, said this may slow down the pace of the secondary markets. "Stock in the mid and small segment may be affected and won't rise as dramatically as they have in the past couple of months," he said.

The RPL IPO, which opened for subscription on Tuesday, received bids for Rs 1,08000 crore, against the issue size of nearly 12,000 crore, as the issue got over subscribed by nearly 11 times on the first day.

Both the small and mid-cap indices of the Bombay Stock Exchange have declined by over six percent in the past one week on account of selling pressure from top brokers to provide margin funding to clients.

As per estimates by stock brokers, as many as 170-175 IPOs are lined up for 2008, with an estimated size of Rs 60,000 crore, of which over 20 IPO would open before the end of February. Some sections, however, feel there may not be a dearth of liquidity in secondary market.

"It was mainly the mad scramble for providing funds to both retail as well as high networth individuals during the RPL IPO, which saw a major sell-off from top brokers. However, this may not be the case in other IPOs," said Mayank Dalal, head investment banking division at Centrum Capital.

Bagga too pointed out that in the coming days it could be the foreign institutional buying, which may cheer the secondery markets.