IPOs made during bearish spell deliver higher returns

With a spate of initial public offers (IPOs) in the pipeline in the next one month, it will, perhaps, be wise to remember that caution pays in the long run.

A quick survey of the IPOs floated during the last bull run shows that investors have ended up paying too much - running with the upbeat market sentiment.

On the contrary, IPOs floated during bear markets offer whopping returns in the long run when market conditions turn favourable.

For example, of the 14 IPOs floated between September 1999 and December 2001, only seven are commanding a premium to the offer price now.

But all four IPOs made between January 2002 and June 2003, when the markets were flat, are commanding huge premiums over their issue prices.

Though Indraprastha Gas (offer price: Rs 45) and TV Today Network (offer price: Rs 95), the two IPOs floated in the current bull run, currently command hefty premiums over their respective issue prices, profit booking immediately following their listing has eaten substantially into their premiums on Day One.

Indraprastha Gas is now quoted at Rs 102.85 compared with its high of Rs 165 immediately after listing. TV Today is currently quoted at Rs 159.90 compared with its post-issue high of Rs 225.

Of the 14 pre-January 2002 IPOs, Shree Rama Multi-Tech is currently available at Rs 8.75 - a massive 92.7 per cent discount over its issue price of Rs 120 a share.

MRO Tek is down 82.8 per cent compared to its issue price of Rs 95 while Pritish Nandy Communications (PNC) is quoted at a discount of 75.6 per cent to its issue price of Rs 155 per share.

Creative Eye is 73.5 per cent lower, Aztec Software down 66.3 per cent, Mid-day Multimedia down 53.2 per cent and iGate Global Solutions (formerly Mastek) down 51.4 per cent over their IPO prices.

The seven other pre-January 2002 IPOs, commanding a modest premium, include Hughes Software, which commands a 81 per cent premium. Cadila Healthcare quotes at a premium of 71 per cent, Balaji Telefilms is up 240 per cent at Rs 88.55, MosChip Semiconductor is at a premium of 310 per cent at Rs 41 and D-Link has appreciated 241 per cent to Rs 204.60.

But the four IPOs which have hit the markets after January 2002 are commanding a premium between 165 per cent and a whopping 1000 per cent.

Bharti Tele-Ventures is currently traded at Rs 153.15, up 240.3 per cent over its issue price of Rs 45. Bharti's Rs 834 crore issue hit the market in January 2002.

The i-flex solutions scrip is up 165 per cent to Rs 698.15 compared with its issue price of Rs 265 (adjusted for bonus issue of 1:1).

Divi's Laboratories is quoted at Rs 1519.40, a hefty 985.3 per cent premium above its issue price of Rs 140. Maruti Udyog's stock was traded 295.4 per cent higher at Rs 494.30 against its issue price of Rs 125.