That stock markets are not the best place to be in currently, is an understatement. Though meant to help industry raise funds, they are failing in this responsibility due to high valuations being demanded. This calendar year has seen a total of nine primary issues. Of these, three were withdrawn and we are almost halfway through the year.
There are a few reasons for this sad state of affair. The greed of promoters and merchant bankers in overpricing the issues is hurting investors. They, in turn, are not prepared to take risks. Also, changes in listing day norms have rendered manipulators useless. Hence, entities that earlier used to manipulate the market on listing day and provide exit to a group of investors has stopped. When issues are marketed with different valuation models (for each company doing the same type of activity), it confuses analysts. As a result, investors who follow recommendations from these analysts are also confused.
A case in point would be different models introduced when there was a spate of public issues from power companies such as NHPC, Adani Power and JSW Steel. Of course, it began with the mother of all issues, Reliance Power.
Finally, with so much variety available in the secondary market, risk appetite for IPOs has disappeared.
The Sebi chief is very clear and firm that he will not extend the deadline for companies to attain a minimum public shareholding of 25 per cent. For the private sector, the deadline is June 2013 and for PSUs, it is August 2013. By next June, 181 private sector companies have to offer roughly Rs 27,000 crore. By August 2013, PSUs need to sell shares worth Rs 12,000 crore. The figure does not end here as we have not considered unlisted PSU and private companies who wish to list.
Investors need avenues to channelise their savings and invest profitably. There were no IPOs in the October-December quarter of 2011. Investors were seen investing in tax-free and corporate bonds. One also saw how quickly investors learnt to differentiate between issuances and subscribed accordingly. A total of Rs 30,000 crore was raised from tax-free bonds last year. Corporates raised another Rs 5,500 crore via bonds listed on exchanges.
This shows there is risk taking appetite and also willingness to invest provided, reasonable returns are visible.
The government has set a target of Rs 30,000 crore from disinvestment for the financial year 2012-13. Public sector companies have been allowed to issue tax free bonds of Rs 60,000 crore. Adding up all these numbers, we will see plenty of action in the primary market.
However, it looks a mirage with secondary markets doing nothing. This would be a great opportunity for investors to demand proper pricing of issues. The objective should be, if the price of an IPO is not rewarding the risk taker, it should be simply avoided. Investors should take concerted efforts to be choosy and demanding. When the investor is spoilt for choice, why should he not throw tantrums?
The writer is founder, Kejriwal Research and Investment Services
