'Good pricing can revive IPO mart'

C B Bhave

Even as the capital market regulator Securities and Exchange Board of India (Sebi) is set to introduce reforms in the primary market that could benefit investors and restore their confidence in the IPO (initial public offerings) market, experts say a revival is possible only if public issues are attractively priced and stability returns to the secondary market.

Sebi Chairman C B Bhave recently proposed a slew of measures, including fast-tracking of the IPO allotment system, asking qualified institutional buyers to pay 100 per cent money up-front for public issues and putting in place a system that retains the subscription money in the investor's bank accounts till the share allocations take place.

Investment advisor S P Tulsian is of the view that Sebi's proposed steps would go a long way in making the primary markets more efficient. However, the key factor that could ensure the return of investor interest was a fair pricing of IPOs.

"If there is an opportunity to earn good returns in an IPO, people would invest under any circumstances. Going by the recent IPO debacles, both merchant bankers and companies should learn to price their IPOs and leave something on the table for investors," he said.

Speaking at an IPO conclave on Tuesday, Bhave too guardedly criticised the pricing of primary issues. Both the merchant bankers and issuers were on the same side of the table in this regard, he pointed out.

"There is a perception that just because the markets came down, it is a bad time for the IPOs. I would urge you to consider whether that is the case or if it is a matter of pricing?" he asked.

The Sensex is down nearly 25 per cent from the early-January peak, forcing several companies to postpone their IPOs and QIP (qualified institutional placements) issues.

The mega IPO of Anil Ambani-promoted Reliance Power proved to be a dampener after its shares witnessed a sharp correction on listing.

This had a domino effect on other major IPOs, including Wockhardt Hospitals, Emaar-MGF and SVEC Constructions.

All the three IPOs were forced to withdraw their share offerings due to lack of investor interest.

Prithvi Haldia, managing director of Prime Database, a company tracking corporate and primary market developments, is however of the view that primary markets usually follow the secondary market. IPOs have suffered mainly as the timing was not right.

Some companies including Emaar and Wockhardt announced their primary issues at a time when markets were going through a turbulent phase and there was a liquidity crunch.

"No one complains about IPO pricing when the secondary markets are good as everyone earns money," he said.

According to analysts, the Reliance Power IPO too added to the turbulence as it attracted huge money from the secondary market.

The issue was subscribed 72 times, witnessing nearly 45 lakh applications and a record collection of $180 billion (Rs 710,000 crore).