IPO market is not dead

ANALYST'S VIEW

The year 2007 was a blockbuster one for the primary markets with fund raising touching an all time high of Rs 442 billon. With robust economic factors and the "India Growth Story" expected to remain intact, 2008 appears to be even more promising.

India will continue to attract "Large global inflows" in 2008 as very few countries would offer a combination of strong economic growth of 8.5 per cent annually, stable macro economic environment, good corporate performance, favourable demographics, rising domestic participation and good resilience to US economic slowdown.

These factors will continue to stimulate the secondary markets, thus keeping them buoyant, despite international factors such as sub prime crisis, weak global markets and rising oil prices. The buoyant secondary markets will in turn provide momentum to the primary markets.

Indian companies, especially those into infrastructure, construction and banking and financial services, are in aggressive expansion mode and would look to the IPO route to fund their requirements. All this should make 2008 a spectacular year for primary market issuances, with the possibility of enormous action in terms of fund mobilization and corporate actions.

The primary markets have offered stellar returns to investors. Of the 101 issues last year, 91 IPOs have allowed investors to exit at a profit. Only ten have never quoted above offer price. The average listing premium improved to 30 per cent in 2007 from 24 per cent in 2006.

For the IPO market to get cracking, we don't necessarily need a rising secondary market. What we need, for sure, is "stability and positive sentiments". The last 4 years have seen four major corrections. After each correction, the markets have taken about 100 days to regain their former glory.

The bounceback has been driven primarily by strong fundamentals. And as we continue to be fundamentally robust, the IPO market is not dead; it is only experiencing some anxiety, which might be a good thing in the long run.

It is unfair to paint all IPOs with the same brush and presume there are no takers. A quality issuer with quality management and realistic pricing will always find takers. The recent correction will only help to bring some level of sanity back into the system. Besides, over-subscription levels might drop, improving an investor's chances of getting an allotment.

We believe 2008 will continue to be the year of mega IPOs. The primary market is not just alive, but there is much steam left. 2008 may go on to become the biggest primary market year.

Atul Mehra, MD & Co-CEO, JM Financial Consultants