Floatscam

It's time Sebi took a look at manipulation in IPOs

Earlier this month, Punjab National Bank and Emami Limited hit the markets with secondary issues. While PNB fixed the price range for its issue between Rs 350 and Rs 390, Emami's issue price was fixed between Rs 60 and Rs 70.

Both issues got overwhelming responses. The PNB issue closed on March 11, while Emami closed a day earlier. It's interesting that the PNB stock traded between Rs 488 and Rs 512 (closing prices) on the days its issue was open.

That would give investors a gain ranging between 25 and 31 per cent over the issue price of Rs 390. In Emami's case, the share price ranged between Rs 98 and Rs 103 while the issue was open, giving investors the impression that gains between 39 and 47 per cent could be made over the issue price of Rs 70.

The problem is both these stocks have corrected dramatically since their issues closed. PNB currently trades at Rs 395 which is 19 per cent lower than its price on the issue closing day, while Emami is currently priced at Rs 76 or 22 per cent lower. In the same period, BSE's Bankex and FMCG indices have fallen by much lower percentages""8.6 and 6.9 per cent, respectively.

Consider also that the share prices of these stocks had jumped shortly before the issue opened. PNB's share price rose from Rs 437 two days prior to the issue to Rs 511.6 on the day its issue opened. In Emami's case, the share price jumped from less than Rs 85 four days before the issue to over Rs 100 by the time the issue began.

The sharp rise in these stocks just prior to the issue and the sharp correction later may point to manipulation, and needs to be investigated.

Pfizer India

Pfizer India has reported lacklustre results for the last quarter. Although profit before exceptional items and taxation has grown 23.42 per cent to Rs 28.45 crore, largely due to a tight check on costs, net sales declined 2.87 per cent to Rs 132.93 crore.

Senior management reiterated that the plan to implement VAT led to dealer agitation across several parts of the country, resulting in lacklustre offtake.

But apart from VAT, sales growth in the domestic pharma market has shown signs of being sluggish for the past 8-9 months. MNC pharma companies like Pfizer India, which are largely dependent on the domestic market, have suffered.

Profits were cushioned by raw material costs dropping 13.84 per cent. Cost reduction programmes have also helped. These measures led to operating profit (excluding other income) growing 34.4 per cent to Rs 22.8 crore in the last quarter.

Operating profit margins have improved 476 basis points to 17.15 per cent. The management is optimistic that a smooth VAT implementation should help revive sales growth in this quarter.

As a result, the stock rose 4.4 per cent in Wednesday trading. Pfizer's product launches have been scarce, but there have been reports that the company may consider introducing products from its parent's portfolio in the new patent environment.

Introducing new products will be vital, since current prospects are adequately priced in the stock, which trades at about 24 times estimated earnings for the year ending November '05.

MSCI and the emerging markets

The performance of the Indian market in March has been more or less in line with the average for all emerging markets. 
 

MSCI Index
(In per cent)	2005 (to Mar 29)	2004	2003
India	-4.08	10.96	65.49
China	-0.39	-0.68	80.29
Indonesia	6.57	59.30	59.96
Korea	7.46	4.22	33.21
Malaysia	-2.99	11.81	23.11
Philippines	5.37	25.47	44.54
Taiwan	-4.75	-0.56	36.71
Thailand	-0.10	-5.91	115.35
EM Asia	-0.83	5.06	44.94
EM	1.44	13.21	42.34
World Index	-0.66	9.49	22.76
US	-3.71	8.80	26.78

The MSCI index for India shows a negative return of 5.25 per cent for the month up to the 29th. That's slightly lower than the MSCI Emerging Markets Index, which was down 5.81 per cent in the month to March 29, and almost the same as the MSCI Asia index, which fell 5.21 per cent. Emerging markets fell far more than the developed markets in March, with the US index down only 2.98 per cent.

While the carnage in emerging markets has been attributed to the US Federal Reserve's action on Tuesday, March 22, the truth is that emerging markets had started falling earlier in the month, in anticipation of monetary tightening in the US.

For example, the MSCI Emerging Markets Index was down 1.1 per cent in the month to March 14, with the Asian index falling by 0.89 per cent. And although the MSCI India index was up 1.34 per cent in the month to March 14, the Chinese, Korean, Malaysian, Taiwanese and Thai MSCI indices were already in negative territory. It is because the Indian index started falling later that the recent drop has seemed so steep.

More significant is the performance of the MSCI index over the past two years""""the duration of the rally. Notice how momentum slowed considerably in 2004 compared to 2003's stellar returns, which puts the current nervousness in perspective.

With contributions from Mobis Philipose and Amriteshwar Mathur