Raft of IPOs to keep momentum going

With markets on cloud nine and yields from stocks falling, it is not all good news for new investors looking at investing in stocks.

And with dollars pouring in from low-interest economies such as Japan and the US, many blue chips are priced out of reach. Market players, however, are pinning their hopes on primary offerings to keep the market balanced.

In 2005, due to limited supply of shares in the primary market and virtually no government divestment, prices in secondary markets zoomed.

Experts, however, reckon some selloff will happen in 2006. This, combined with a raft of IPOs should ensure better returns on investments in the capital markets, despite an expected increase in foreign fund flows.

"We expect foreign institutional investor (FII) inflows in 2006 to be higher than those last year," said Nilesh Shah of Edelweiss Securities.

From a record $10.7 billion (around Rs 47,000 crore) last year, Nilesh expects foreign fund inflows to touch $12 billion in 2006.

Ramdeo Agrawal, managing director of Motilal Oswal said, "In a perverse way, the government helped the secondary market boom as lack of supply drove prices to dizzying heights".

This year, markets have been dancing to FIIs' tune, with movement in turnover and indices mirroring changes in FII inflows.

FII outflow in 2005 caused a drop in market activity, as reflected in the combined market turnover for the BSE and the NSE. Conversely the markets perked up, underpinned by a rise in FII inflows.

Similarly, over the last 18 months, the Sensex's movements have been largely been dictated by flow of FII funds.

Analysts said the stock markets in India are getting used to the kicks from foreign money. "The money, which used to be locked up in debt overseas, are coming to emerging markets thanks to the growth rate of the economy.

This trend is only going to increase, with the interest rate hike era in US drawing to a close," Shah added.

He said while the market may not be able to absorb another $10 billion at similar circumstances, the large number of IPOs are likely to set off the "inflationary" effects of the funding.

"We estimate IPOs alone will create additional investment opportunities of around $10-12 billion next year. And we will see a lot of old shareholders selling out to institutional investors in the coming months. There will also be newer opportunities in the form of new listings," he adds.