The markets suffered their worst weekly loss in a couple of years and the benchmark indices lost about 4.5%. There was bearishness all around and though job data in the US showed that unemployment at 5.1% is at its lowest in over seven years there was confusion on action to be taken by FED in its meeting next week. Amidst this mayhem the primary market is even more affected and the reason for the same is the aggressive pricing which continues.
The latest casualty was Prabhat Dairy which had tapped the markets with a simultaneous fresh issue to raise Rs 300 crs and an offer for sale of 1.47 cr shares in a price band of Rs 140-147. The issue did not receive any anchors and then inadequate subscription saw the issue price band being reduced to Rs 115-126. Even at this band the issue was subscribed 0.77 times and would be termed as successful by reducing the offer for sale component accordingly.
Merchant bankers have themselves to blame as in their zest to get mandates, fees and the client, assure promoters of valuations which are unsustainable. When the going is good with the help of oversubscription from HNI’s who apply for one time of the issue size with leveraged funds at 2% margin manage to subscribe expensive issues. But when the markets fall in two weeks about 8% they are unable to get subscription. Simple excuse thereafter blame the market fall. Should an IPO not offer value to the investor? Is a fall of 8% enough to derail the primary markets? In India with the present pricing it is enough but take the case of IOC (Indian Oil) offer for sale where Rs 9,300 crs was raised on Manic Monday when markets fell over 5% in a day. The issue was subscribed and investors made money. Even today the price of IOC at Rs 407.50 is higher by Rs 20.50 or 5.3%.
How many of the five issues which tapped the capital markets post IOC would be able to say the same on listing only time will tell. There would be listing of atleast one of those issues this week. Let us hope and pray that the community learns to respect the investor and leaves something on the table for him.
