Date:05/02/2008 URL: http://www.thehindubusinessline.com/2008/02/05/stories/2008020551991500.htm

Back Market turmoil triggers IPO market cool-off

Leveraged bets may not pay

BL Research Bureau

Several pointers over the past couple of weeks suggest that the turmoil in the secondary markets is slowly filtering down to the primary markets as well.

For one, record three-digit subscription numbers for IPOs, which the stream of offers until Reliance Power managed to garner, have given way to a more moderate response.

Even quality IPOs such as Onmobile Global and to an extent, KNR Construction managed to garner only moderate subscription levels under present market conditions.

Second, there are also signs of renewed investor resistance to aggressively priced offers.

Quite a few of the offers in recent months were from companies in a nascent stage of a project or business with big expansion plans.

Offer prices in these cases did not leave much room for execution-related risks.

Aggressively priced offers may however, meet with stiffer investor resistance from here on.

The lowering of price bands for the IPOs such as Emaar MGF and Wockhardt Hospitals which opened last week, despite the big brands on offer, is a pointer to this. So is the modest listing performance of Future Capital Holdings.

Tread with caution

The IPO pipeline for the next few weeks continues to be strong.

However, rising risk aversion on the part of IPO investors – both individual and institutional, suggests that retail investors should tread with caution while taking leveraged bets on the primary market offerings over the next few weeks.

We recommend sticking to quality offerings and investing in IPOs with a two-three year view, rather than going merely by the potential for flipping the stock on listing.