TCS and the markets

The success of the TCS issue has destroyed several myths and reinforced some old lessons. To start with, there was some talk that the sheer size of the issue would be too much for the market to digest, now that the bull run has abated.

Thanks to TCS' reputation, there were few doubts that the issue itself would sail through, but many felt that investors would withdraw money from other software stocks in order to fund the addition of TCS to their portfolios.

Money was supposed to rotate from other frontline technology counters like Infosys and Wipro into TCS. However, nothing of the sort has happened so far, and enough new money poured into the primary markets to take advantage of the offer.

In fact, the oversubscription of the issue at the higher end of the price band is suggestive of the amount of money waiting on the sidelines. Retail investors alone bid for shares worth Rs 13,000""14,000 crore, while FII bids amounted to around Rs 17,000 crore.

To be sure, many investors borrowed money to subscribe to the issue, and others may have subscribed only to make a quick buck on listing. Nevertheless, the extent of oversubscription does seem to suggest that there's a lot of appetite among investors for quality paper.

The third myth that the TCS issue has demolished is that foreign investors have deserted the emerging markets. While there is no doubt that global conditions have led to a diminution of risk appetite, the enthusiastic response that the TCS issue received from institutional investors proves that quality paper will always have takers among foreign investors.

Moreover, TCS amply responded to the trust reposed in it by investors by pricing its issue less aggressively than it could have: instead of opting for the upper end of the price band at Rs 900, it chose the Rs 850 level.

That left some money on the table for investors wanting to exit immediately, a point borne out when the stock listed. Companies seeking to build long-term relations with investors can earn their goodwill by pricing issues reasonably.

The TCS listing has catapulted the Tata group to the top of the corporate league tables in terms of market capitalisation. It has rectified the anomaly where one of the largest corporate groups in the country was playing second fiddle on the bourses solely because its most profitable company was not listed.

Also, listing allowed Tata Sons to realise value from building up the business, value that can now be used to invest in the group's other capital-hungry businesses like telecom. Listing also allows TCS to build up a new currency""its own shares""with which to fund acquisitions.

The other advantages include a higher corporate profile, improved brand recognition, and the ability to raise capital on favourable terms. Overall, the TCS IPO has been very positive for the market at a difficult time, proving once again that it is not only good markets that benefit companies, but also the other way round.